Ceren Çakır / Partner
Rumeysa Urkuç / Legal Intern
Overview
A Turkish exclusive distributor of an international car manufacturer filed a claim before the Turkish courts, seeking portfolio compensation, damages for the amounts paid in respect of defective cars sold, and additional remedies for breach of the exclusive distributorship agreement.
The respondent manufacturer contested all claims brought by the distributor and sought dismissal of the case, primarily on procedural grounds, arguing that all disputes arising from the distributorship agreement were subject to arbitration before the International Court of Arbitration.
The court of first instance examined the validity of the arbitration agreement as a priliminary issue and dismissed the case on procedural grounds, finding that a valid arbitration agreement existed. The claimant then appealed the decision before the Regional Court of Appeal, which upheld the decision of the court of first instance and dismissed the appeal on the merits.
The Court of Cassation quashed the decision of the Regional Court of Appeal and remanded the case for reconsideration to the first instance court. The decision has not yet become final.
Facts
The case concerns claims brought by a Turkish exclusive distributor (“Claimant”) against a company belonging to an international car manufacturer group (“Respondent”), arising under an assigned exclusive distributorship agreement originally concluded in 1985 and subsequently assigned in 2013 (the “Agreement”).
It is understood that clause 11/K of the Agreement (dated 1985), entitled “Arbitration”, provides that the parties should first endeavor to resolve any disputes by negotiation or otherwise amicably, and that any disputes that cannot be resolved in this manner shall be finally be settled in England, under the Rules of Arbitration of the International Chamber of Commerce, by one or more arbitrators to be appointed by the Chairman of the National Committee of the International Chamber of Commerce in England.
Furthermore, pursuant to Article 11/L of the Agreement, entitled “Law”, the governing law is determined as English law, and the Agreement shall be interpreted accordingly. The parties also agreed to the non-exclusive jurisdiction of the English courts, depending on the outcome of the arbitration,
Decision of the Court of First Instance
The Court of First Instance (“CFI”) considered that the dispute at issue arises was subject to the parties’ free will and arbitrable. The Court determined that a valid arbitration clause exists between the parties since it was explicitly agreed that any disputes arising under the Agreement would be referred to arbitration.
CFI, treating the Respondent’s arbitration objection as a preliminary issue, found that the arbitration clause is valid, effective, and enforceable. Consequently, without examining the merits of the case, the court dismissed the lawsuit for absence of its jurisdiction.[1]
Decision of the Court of Appeal
The Claimant appealed the decision, and the Regional Court of Appeal ("CA") rejected the appeal on the grounds that there was nothing contrary to law in the decision of the CFI either in terms of procedure or merits.
The CA evaluated the Respondent’s preliminary objection to arbitration under Article 116 of Code of Civil Procedure and noted that an arbitration objection requires the court not only to determine whether an arbitration agreement exists but also to examine its validity. The CA emphasised that pursuant to Article 5 of International Arbitration Law number 4686 (“IAL”), if the arbitration objection is upheld, the court must dismiss the case on procedural grounds.
The CA evaluated clause 11/K of the Agreement and further observed that the dispute was clearly and unequivocally subjected to arbitration under the Agreement. In addressing the Claimant’s argument that the reference to the non-exclusive jurisdiction of the English courts rendered the arbitration clause non-mandatory, the CA clarified that this clause should be understood as designating the English courts as having jurisdiction over procedural matters relating to the arbitration. Accordingly, it did not displace or invalidate the parties’ prior agreement to arbitrate. On that basis, the CA rejected the Claimant’s appeal ground that the arbitration clause had not been drafted as an exclusive and definitive means of dispute resolution.
The CA also noted that although the original contracting party had undergone a change of corporate structure and the distributorship agreement had been renewed in 2013, this renewal transferred all rights and obligations to another group company without altering the arbitration clause contained in the 1985 Agreement. Accordingly, the arbitration clause remained valid and binding on the parties.
In conclusion, the CA found no error in the CFI’s decision and dismissed the Claimant’s appeal, confirming that the arbitration clause was valid, effective, and enforceable, and that no breach of public policy or procedural rules had occurred.[2]
Decision of the Court of Cassation
Following the Regional Court of Appeal’s rejection of the appeal, the Claimant filed a further appeal before the Court of Cassation, arguing that the arbitration clause in the Agreement was neither clearly nor definitively set out, and that the Agreement also conferred jurisdiction on the English courts, thereby creating a contradiction by designating both arbitration and the English courts as competent authorities. It was further asserted that a renewal agreement had been executed between the parties, and that this renewal agreement explicitly granted exclusive jurisdiction to the English courts. On this basis alone, the Claimant argued that the arbitration clause could no longer be considered valid and that it had been effectively revoked by the renewal agreement.
The Court of Cassation emphasized that for an arbitration agreement providing that a dispute shall be resolved by arbitration, or an arbitration clause incorporated into a contract, to be valid, the parties’ intent to arbitrate must be expressed with absolute clarity, leaving no room for doubt. It was further noted that a valid arbitration clause requires a written agreement signed by the parties, or a clear and mutual expression of consent—such as through an exchange of letters or telegrams—demonstrating an unequivocal intention to resolve disputes through arbitration. In the absence of such clear consent, the arbitration agreement will be deemed invalid.
The Court of Cassation considered that although it was stipulated in the Agreement that the dispute would be finally resolved under the ICC arbitration rules by one or more arbitrators to be appointed in accordance with the rules of the Chairman of the National Committee of the International Chamber of Commerce of England, the parties further accepted the non-exclusive jurisdiction of the English courts resulting not having a clear and unequivocal intent to arbitrate. Accordingly, the Court of Cassation concluded that there is no valid arbitration agreement under Turkish law. Nonetheless, the Court of Cassation ruled that the validity of the arbitration agreement must be interpreted according to the law expressly chosen by the parties, being English law: “However, since the agreement expressly provides that the contract shall be governed in all respects by English law and interpreted in accordance with that law, the validity of the arbitration clause must also be assessed under English law. In this regard, the court should have obtained in the file a translation by a sworn translator of the relevant provisions of English law, and then evaluated whether the arbitration clause stipulated in the agreement is valid under English law. Instead, rendering a judgment in the manner set out in writing was not considered proper, and it necessitated the quashing of the decision.”. Therefore, instead of a prima facie examination, the Court of Cassation ruled that a detailed assessment based on the applicable law should have been made by the lower courts[3].
Scholar Opinions on the Scope of Review of the Arbitration Objection When a Lawsuit is Filed before State Courts Despite an Arbitration Agreement
It should be noted that under Turkish law, as well as many other jurisdictions, it is accepted that the arbitrators have the power to rule on their own jurisdictional competence as per the Competence-Competence principle.[4]
However, despite the existence of an arbitration agreement, a party may still commence proceedings before state courts.
According to the article 5 of IAL number 4686[5] the respondent may raise an arbitration objection as a preliminary objection in its statement of response. If, upon such objection, the claimant challenges the validity of the arbitration agreement, as illustrated in the court decision analysed above, the issue then arises as to the scope of the court’s examination of the arbitration objection and the validity of the arbitration agreement.
Does such judicial scrutiny risk undermining the arbitrators’ authority to rule on their own jurisdiction?
The issue remains controversial as to whether the courts should make a prima facie review of the existence of an arbitration agreement or a detailed examination on its validity.
According to some scholars, when an arbitration objection is raised, the state court’s review of the validity of the arbitration agreement should be limited to a prima facie assessment.[6] This approach derives from the competence-competence principle: while arbitrators have the authority to rule on their own jurisdiction (positive effect), state courts are restricted to a first-sight review so as not to encroach upon the arbitral tribunal’s jurisdictional competence (negative effect).
According to this view, a prima facie review protects international commercial arbitration from tactics used by parties to delay proceedings and ensures the efficient conduct of the arbitral process.[7]
It is also argued that a distinction shall be made between nullity and invalidity of the arbitration agreement.[8] The court should carry out a full inquiry to establish whether an arbitration agreement exists, while a prima facie review would be sufficient with respect to its validity. [9]
Another scholarly opinion holds that where an arbitration objection is raised, the court’s review of the validity of the arbitration agreement should be limited to determining whether it is null and void, ineffective, or unenforceable. If none of these grounds exist, the court must uphold the objection and dismiss the case on procedural grounds pursuant to Article 413 of Code of Civil Procedure.[10]
Scholars who contend that courts should conduct a full review of the validity of the arbitration agreement[11] base their argument on the wording of Article 5 of IAL, which provides that “in the event that the arbitration objection is upheld, the court shall dismiss the case on procedural grounds.”[12] According to this view, the provision obliges courts to undertake a comprehensive examination of the validity of the arbitration agreement. This position is further reinforced by the argument that, in setting-aside or enforcement proceedings concerning an arbitral award, it is ultimately the courts that have the authority to determine the validity of the arbitration agreement.[13] Proponents of this view further submit that such an approach does not undermine the competence-competence principle or cause delay in proceedings, since judicial review of the arbitration agreement is already envisaged at the post-award stage.
Conclusion
The decision is noteworthy as it demonstrates that the Turkish Court of Cassation does not confine itself to a prima facie review of the arbitral tribunal’s jurisdiction but also requires scrutiny of its validity under the law applicable to the arbitration agreement when a party brings a lawsuit despite such an agreement.
The Court of Cassation has emphasised in its other decisions as well that arbitration is an exceptional remedy and that the parties’ intention to arbitrate must be clear and unequivocal. This approach requires a full review, going beyond a mere prima facie assessment.
It is necessary to emphasize another point related to the arbitration agreement which forms the subject matter of the dispute discussed in this article. We have not been able to identify any final court judgment concerning this particular dispute. However, it should be noted that, in a different dispute arising from the same Agreement, an application for the enforcement in Türkiye of an arbitral award rendered in proceedings initiated and concluded by the car manufacturer was filed.
Although the court of first instance granted the enforcement of the award, the Regional Court of Appeal reached the conclusion that, “although the parties agreed on ICC arbitration under Article 11 K(ii) of the agreement dated 25 June 1985, they also accepted the non-exclusive jurisdiction of the English courts under Article 11 L(ii). Therefore, the parties did not express their intention to arbitrate in an unequivocal manner, and accordingly, the arbitration clause was neither valid nor enforceable.”
Furthermore, the Regional Court of Appeal held that, “as stated in paragraph 8 of the renewal agreement signed later on 25 February 2013 —‘…All parties to this letter irrevocably accept that the English courts shall have exclusive jurisdiction to hear and determine any suit, action or proceedings, and/or to settle any disputes (including claims and disputes of a non-contractual nature) arising out of or in connection with this letter or its formation or validity, and for these purposes each party irrevocably submits to the jurisdiction of the English courts’— the parties conferred exclusive jurisdiction on the English courts for disputes arising between them. Contrary to the finding of the court of first instance, the provisions of Articles 11 K and 11 L of the 1985 agreement ceased to have effect with the renewal agreement.”[14]
On these grounds, the decision of the first instance court was quashed, and the enforcement claim was dismissed on the basis that no valid arbitration agreement existed. This decision was very recently upheld by the Court of Cassation.[15]
Keywords: Arbitration, Arbitration Agreement, Preliminary Objection, Review of the Validity of the Arbitration Agreement by Local Courts
The information and assessments provided in this article are for informational purposes only and do not constitute a legal opinion on any specific case. This article does not serve as an advertisement. The intellectual property rights of this article are owned by the writer, and all rights are reserved.
[1] Decision of Istanbul 6th Commercial Court of First Instance, dated 12 November 2020, File No. 2019/706 Decision No. 2020/670.
[2] Decision of Istanbul 13th Civil Chamber of the Regional Court of Appeal, dated 10 June 2021, File No. 2021/899, Decision No. 2021/884.
[3] Decision of 11th Chamber of the Court of Cassation, dated 22 March 2023, File No. 2021/6517, Decision No. 2023/1762.
[4] Article 7/H of IAL: “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” Akıncı, Ziya, Milletlerarası Tahkim, Vedat Kitapçılık, 2020, p. 182.
[5] “If a lawsuit is filed before a court in relation to a dispute that is the subject of an arbitration agreement, the counterparty may raise an arbitration objection. The raising of the arbitration objection and the resolution of disputes concerning the validity of the arbitration agreement are subject to the provisions of the Code of Civil Procedure on preliminary objections. In the event that the arbitration objection is upheld, the court shall dismiss the case on procedural grounds. If the parties agree to arbitrate during the court proceedings, the case file shall be sent to the arbitrator or the arbitral tribunal by the court.”
[6] Esen, Emre, Uluslararası Tahkime Tabi Bir Uyuşmazlığın Devlet Mahkemelerine Götürülmesi Halinde Tahkim Anlaşmasının Geçerliliğine İlişkin İtirazların İncelenmesi ve Kompetenz-Kompetenz Prensibi, Galatasaray Üniversitesi Hukuk Fakültesi Dergisi, 2011, S.1, p. 377.
[7] Aydın, Esen, Yabancı Bir Devletin Tahkim Yeri Olarak Kararlaştırıldığı Hallerde Tahkim Anlaşmasının Geçerliliğine Uygulanacak Hukuk, Akıncı, Ziya/Demirkol, Berk, Tahkim ve Uygulanacak Hukuk, ISTAC Yayınları-IV, p. 13.
[8] Erkan, Mustafa, Milletlerarası Tahkimde Yetki Sorunları, Yetkin Yayınları, 2013, p. 96.
[9] Erkan, Mustafa, Milletlerarası Tahkimde Yetki Sorunları, Yetkin Yayınları, 2013, p. 96.
[10] Pekcanıtez/Yazıcı, Medenî Usûl Hukuku, Cilt II, İstanbul 2025, p. 1870
[11] Ekşi, Nuray, Milletlerarası Deniz Ticareti Alanında ‘Incorporation’ Yoluyla Yapılan Tahkim Anlaşmaları, 2. Baskı, İstanbul, 2010, p. 65.
[12] Akıncı, Ziya, Milletlerarası Tahkim, Vedat Kitapçılık, 2020, p. 183.
[13] Akıncı, Ziya, Milletlerarası Tahkim, Vedat Kitapçılık, 2020, p. 188.
[14] Decision of Istanbul 14th Civil Chamber of the Regional Court of Appeal, dated 11 July 2024, File No. 2021/718, Decision No. 2024/1128.
[15] Decision of 11th Civil Chamber of the Court of Cassation, dated 3 July 2025, File No. 2024/5356, Decision No. 2025/4827.