Erdinç Bozkurt / Associate
Arbitration is the process whereby the disputing parties leave the resolution of the dispute to individuals known as arbitrators rather than to a state court, and the dispute is examined and resolved by these arbitrators in a final and binding manner in matters permitted by law to be resolved through arbitration.
International arbitration and domestic arbitration are governed by separate legislation under Turkish law. The International Arbitration Law (“IAL”) applies to disputes that have a foreign element and where the seat of arbitration is determined to be Türkiye or where the provisions of this law are chosen by the parties or the sole arbitrator or arbitral tribunal.
Domestic arbitration (national arbitration) is regulated by Articles 407 to 444 of the Code of Civil Procedure (“CCP”), and the provisions of the CCP apply to disputes that do not involve a foreign element.
In this article, we will examine some issues encountered in practice regarding the action for setting aside that may be filed against arbitral awards rendered under the CCP and the stay of enforcement of the arbitral award during the set-aside proceedings.
An action for setting aside an arbitral award may be filed within one month following the notification of the award as per Article 439 of the CCP. The competent court to hear the action for setting aside is the regional court of appeal to which the seat of arbitration is subject. The action for setting aside is not a legal remedy (i.e., appeal and cassation) but a separate lawsuit. In other words, the regional court of appeal hears the action for setting aside as a first-instance court.
A legal remedy denotes the procedural options that can be pursued to rectify substantive and procedural deficiencies and errors present in a judicial decision. As will be discussed below, the judge hearing the action for setting aside will not engage in a substantive assessment of the merits of the dispute.
The grounds for setting aside an arbitral award are listed in Article 439/2 of the CCP. If a request for setting aside is made on grounds other than those listed, this request will be rejected by the regional court of appeal. In the second paragraph, the grounds for setting aside arbitral awards are enumerated in a limited manner due to the purpose, nature, and historical development of arbitration and to ensure efficiency in arbitration. Upon examination of the listed grounds, it becomes clear that whether the judge applied the law correctly or not is not foreseen as a ground for setting aside. However, if the incorrect application of the law constitutes a violation of public order, the judge may accept the incorrect application of the law as a ground for setting aside.
In Article 439/6 of the CCP, an appeal is permitted against the action for setting aside. This appeal is a legal remedy. However, as explicitly stated in the text of the article, filing an appeal against the action for setting aside shall not stay the enforcement of the judgment.
Arbitral awards, by their nature, are equivalent to court decisions. Therefore, the parties are obliged to comply with the arbitral award. In cases where the arbitral award is not voluntarily complied with by the parties, it will be necessary to resort to enforcement proceedings. It is emphasized in the rationale of Article 436 of the CCP that arbitral awards are enforceable.
In this case, the enforcement proceeding to be followed will be an enforcement proceeding with judgment, as required by the judicial nature of the arbitral award.
Parties may file an action for setting aside the arbitral awards at the regional court of appeal pursuant to Article 439 of the CCP. However, subjecting the award to an action for setting aside will not suspend any ongoing enforcement proceeding with judgment. The creditor may continue its enforcement proceedings while the action for setting aside is pending.
However, one of the parties may suspend the ongoing enforcement proceedings with judgment before the enforcement office, provided that security is presented to cover the value of the money or property awarded in the judgment as per Article 439/4 of the CCP.
Although the text of the article stipulates that a request for a stay of enforcement may be made to the regional court of appeal by providing the necessary security, the legislation does not specify where the security should be deposited and from which court and how the decision to stay enforcement should be obtained. This lack of clarity creates uncertainty in practice. While some debtors request the stay of enforcement of the arbitral award from the regional court of appeal, others request the stay of enforcement from the enforcement court. It is accepted by the 22nd Civil Chamber of the Istanbul Regional Court of Appeal that the decision on the stay of enforcement should be rendered by the regional court of appeal conducting the proceedings. In this context, requests for a stay of enforcement made to the enforcement courts are being rejected.
While there is a consensus in the doctrine that the decision should be obtained from the regional court of appeal, the way this decision should be obtained remains controversial. Two different views have emerged in the doctrine regarding this issue. The first view regarding where the security should be deposited is that the provisions of Article 36 of the Enforcement and Bankruptcy Law (“EBL”) should be applied by analogy. According to this view, the party requesting the stay of enforcement pursuant to Article 36 of the EBL shall request a time limit by depositing the security with the enforcement office where the enforcement proceedings were initiated until a decision on the stay of enforcement is obtained from the regional court of appeal. In other words, proponents of this view argue that the procedure currently applied in the enforcement proceedings with judgment initiated based on court decisions should be followed, which involves “obtaining a certificate of time limit by depositing the security and submitting a marginal note to the enforcement directorate until the decision of stay of enforcement is obtained from the enforcement court.”
The other view holds that the security should be deposited with the regional court of appeal where the action for setting aside has been filed. Proponents of this view argue that the absence of any reference in Article 439 of the CCP, which governs “actions for setting aside arbitral awards,” to Article 36 of the EBL, which stipulates that “a security must be deposited with the enforcement office to obtain a stay of enforcement order from the relevant enforcement court,” indicates that a separate procedure is foreseen for the enforcement of arbitral awards. Accordingly, until a decision to stay enforcement is obtained, the debtor will prove that it has filed an action for setting aside with a document obtained from the regional court of appeal and will obtain a time limit from the enforcement office without having to provide any security. Subsequently, the debtor will present the security to the regional court of appeal when obtaining the decision on the stay of enforcement.
The greatest risk of this practice arises in the event that the action for setting aside is rejected/the stay of enforcement decision is lifted. The reason is that because the security is in the possession of the regional court of appeal, the enforcement office will not be able to liquidate the security or seize the cash security.
The fact that the security has been deposited and a request for stay of enforcement has been made from the regional court of appeal does not mean that the court is obligated to grant the stay of enforcement decision. For the court to decide on the stay of enforcement, the grounds for setting aside relied upon must be serious. The expression that the grounds for setting aside must be serious does not imply that the court must conduct a thorough examination of the case. Instead, for the court to decide on stay of enforcement, it needs to decide, at first glance, that the ground presented is indeed serious.
If the court finds the presented grounds for setting aside to be serious, it will decide on the stay of enforcement proceedings until the conclusion of the action for setting aside. The legislator has kept the legal remedy available against the action for setting aside heard by the regional court of appeal in its capacity as a first-instance court. Accordingly, parties to the action for setting aside may appeal against the decision to set aside.
The legal remedy of appeal against the decision to set aside is regulated under Article 439/6 of the CCP. Pursuant to this article, filing an appeal does not stay the enforcement of the judgment. Unlike the actions for setting aside, the legislator has not provided a procedure in the appeal process that would allow for the stay of enforcement. While Article 439/4 of the CCP stipulates that the action for setting aside will not suspend but may be stayed upon the request of one party, provided it deposits a security equivalent to the awarded amount, paragraph 6 regulating the appeal merely stipulates that the appeal will not suspend its enforcement.
Upon examination of a recent decision of the regional court of appeal, it is understood that in practice, if an arbitral award rendered under the CCP is not voluntarily complied with, the debtor's request for the stay of the enforcement proceedings initiated by the creditor should be made to the regional court of appeal that hears the action for setting aside, and the security must also be deposited there.
However, this practice still carries the risk that the enforcement office will not be able to seize the security in the possession of the regional court of appeal; accordingly, the enforcement office would need to provide the debtor with an opportunity to make payment to collect the debt subject to enforcement.
1. AKINCI, Ziya, Milletlerarası Tahkim, 5. Baskı, Vedat Yayıncılık, Istanbul 2020, p. 5
2. Situations involving foreign element are enumerated in article 2 of the International Arbitration Law.
3. SÜRAL, Ceyda, Hakem Kararlarının İcrası ve İptal Davası, Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi, C. 16, Özel Sayı 2014, p. 1378.
4. KALPSÜZ, Turgut, Türk Hukukunda Hakem Kararlarının Temyizi Sebepleri, Banka ve Ticaret Hukuku Dergisi, Haziran 1997, Cilt XIX, Sayı 1, (p. 5-41), pp. 5-6. (YILDIRIM, Fikret, Tahkimde İptal Davası ve İptal Davasının Amaçları Bakımından Bazı Değerlendirmeler, p. 3007)
5. Rationale for article 439 of the Code of Civil Procedure
6. EKŞİ, Nuray, Hukuk Muhakemeleri Kanunu’nda Tahkim p. 1966
7. Rationale for Article 436 of the Code of Civil Procedure
8. SELÇUK, Seyhan, Hukuk Muhakemeleri Kanunu’na Gore Verilen Hakem Kararlarının Icrası, p. 116
9. Istanbul Anatolian 12th Enforcement Court 2017/803 E. 2018/366. K.
10. Pekcanıtez Hakan/Yeşilırmak Ali, Pekcanıtez Usu l Medenı Usu l Hukuku, 15. Bası, C. III, Ön I ki Levha Yayıncılık, I stanbul 2017, p. 2791
11. Özbek Mustafa Serdar, “Yeni İcra ve İflâs Kanunu İçin Öneriler Işığında İlâmlı İcrada İcranın Ertelenmesi”, TNBD 2018/1, pp. 64 - 65
12. SELÇUK, Seyhan, Hukuk Muhakemeleri Kanunu’na Göre Verilen Hakem Kararlarının İcrası, p. 116
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 Emine Ceren Çakır Attorney Partnership, and all rights are reserved.