Dispute Resolution in Turkey 2022

1. What are the most popular dispute resolution methods for clients in your jurisdiction? Is there a clear preference for a particular method in commercial disputes? What is the balance between litigation and arbitration? What are the advantages and disadvantages of the most popular dispute resolution methods?

The most popular dispute resolution methods for commercial disputes or disputes that arise from any private law relations in Turkey are mediation, litigation and arbitration.

After the Law on Mediation in Civil Disputes entered into force as an alternative dispute resolution method in 2013, mediation has gained more popularity. Today, it is also mandatory for commercial disputes over certain monetary receivables and compensation claims. With the latest amendments, mediation for consumer law disputes also became mandatory. Alongside mandatory mediation, voluntary mediation has also become quite popular in Turkey. In the meantime, Turkey has completed the ratification of the Singapore Convention on Mediation, it has been in force since early April 2022. Parties now more often tend to settle their disputes during mediation to avoid a great loss of time and money during litigation proceedings.

The other popular dispute resolution method in Turkey is arbitration. Today, though, parties still seem to prefer traditional court proceedings over arbitration, the tendency to add arbitration clauses in contracts is growing due to the high workload of the local courts in Turkey, which causes litigation processes to take many years. Lengthy litigation processes are likely to result in loss of rights. However, arbitration proceedings provide parties the chance to resolve their dispute faster under the direction of an arbitration body and with arbitrators specialised in particular types of disputes. As is known, one of the significant advantages of arbitration proceedings is the possibility to resolve disputes, especially in matters that require expertise, by arbitrators in such matters, who are freely selected by the parties. This not only speeds up arbitration proceedings but also ensures tailor-made resolution of disputes. Furthermore, the procedural flexibility of arbitration allows parties to adapt the arbitration procedure to their own needs.

2. Are there any recent trends in the formulation of applicable law clauses and dispute resolution clauses in your jurisdiction? What is contributing to those trends? How is the legal profession in your jurisdiction keeping up with these trends and clients’ preferences? What effect has Brexit had on choice of law and jurisdiction clauses?

After the launch of the Istanbul Arbitration Centre (ISTAC), we have witnessed a boom in the number of arbitration clauses inserted to contracts, mostly providing for arbitration or med-arb clauses under ISTAC Rules. Nevertheless, there is still a number of internationally engaged Turkish companies that stick to their old habits and agree to dispute resolution clauses that provide for arbitration under the International Chamber of Commerce and London Court of International Arbitration Rules.

Brexit did not dramatically affect the Turkish legal market. There was no shift in paradigm in Turkish practitioners’ tendencies regarding applicable law or dispute resolution clauses, at least not in relation to Brexit.

3. How competitive is the legal market in commercial contentious matters in your jurisdiction? Have there been recent changes affecting disputes lawyers in your jurisdiction? How is the trend towards ‘niche’ or specialist litigation firms reflected in your jurisdiction?

The legal market in general is quite competitive in Turkey. As per the latest data published by the Union of Bar Associations of Turkey, there are more than 143,000 qualified lawyers in Turkey.

It would not be an overstatement to say that contentious commercial matters comprise the most competitive part of the Turkish legal market. This has the largest spectrum of service providers, ranging from small practices in minor cities and towns to full-service law firms in Turkey’s economic epicentre, Istanbul. Traditionally and generally, legal assistance is sought for corrective purposes rather than preventive purposes, which puts dispute resolution and particularly litigation at the top of legal services sought in Turkey. From basic collection matters to complex shareholder disputes, commercial litigation is the most widely used method of dispute resolution around which the competition is intense.

Istanbul is the city where competition is toughest. Diverse types of law firms range from boutiques to independent practitioners and long-established local full-service firms to affiliate firms of international networks, all competing over clients in the world’s seventeenth largest economy.

Boutique firms are specialised in more niche areas, such as commercial arbitration, investment arbitration, IP disputes, insurance, international trade or financial crimes. Full-service law firms are more focused on complex commercial disputes either before courts or arbitral tribunals.

4. What have been the most significant recent court cases and litigation topics in your jurisdiction?

In 2021, remote hearings have been launched in Turkey under the ‘e-hearing’ programme of the Ministry of Justice. Although the full integration of this has not been completed, the transformations were going quiet well in early 2022.

Cryptoassets have become very popular in Turkey. However, like the rest of the world, they remain unregulated and the Turkish judiciary is still developing a standard approach to the issues they pose. In a dispute from April 2021, the fourteenth enforcement office of Istanbul seized a crypto account belonging to a debtor by delivering a notice pursuant to article 89 of the Code on Enforcement and Bankruptcy to the crypto market, at which the debtor had an account.

Upon the objection raised by the debtor, the enforcement court found that crypto assets can be considered as commodities or securities and that they can also be deemed ‘some sort of currency’ or ‘virtual money’, declaring them attachable.

Despite the attachment made on the crypto account, recent legislation, the Regulation on Non-Use of Cryptoassets in Payments from 16 April 2021, states that cryptocurrencies cannot be deemed as fiducial money, registered money, electronic money, payment instrument, securities or another capital market instrument. The regulation has been in force since 30 April 2021 and we await further regulation in this area in Turkey very soon.

5. What are clients’ attitudes towards litigation in your national courts? How do clients perceive the cost, duration and the certainty of the legal process? How does this compare with attitudes to arbitral proceedings in your jurisdiction?

According to judicial statistics of 2020, published by the Ministry of Justice in 2022, the average adjudication time at the Commercial Courts of First Instance lasts 586 days. At civil courts of firstinstance, the amount drops to 505 days. Upon completion of the First Instance, the dispute may be appealed. The statistics on the Regional Courts of Appeal do not directly display the average time these courts take in adjudicating; however, the number of files the Istanbul Court of Appeals has received exceeded the files it has settled by more than 100 per cent. In practice, this means an average process of appeals is very likely to take longer than a year and is to be followed by the cassation procedure. The cassation procedure, as per the same statistics, take a little less than one year and lasts an average of 259 days.

There are two types of court fees in Turkey: pro-rata application fees and fixed fees. In principle, courts require pro-rata application fees to be deposited for money claims.

According to the Law No. 492 on Fees, the pro-rata application fee corresponds to 6,831 per cent of the claimed amount. The fixed fee, on the other hand, is 80,70 Turkish lira for 2022. If the client is foreign, it would also need to provide the court with a security unless there is a treaty that promulgates the requirement or an actual reciprocity.

Commercial courts in big cities are run by senior judges and there is a high degree of legal certainty in their cases. The introduction of Regional Courts of Appeal helps establish legal certainty as they do fact-checking and can issue the verdict rather than reversing the judgment only. The Court of Cassation is the ultimate body whose precedent play a central role in legal certainty established in commercial matters. While this three-tiered system is structurally beneficial, long durations of respective tiers impede the benefit considered.

Commercial arbitrations have been on the rise in Turkey. Policymakers have taken further steps to spread the application of ADR in an attempt to promote it as, at least, as a viable option, if not a better alternative to state courts. The judiciary responded well to pro-ADR policy being implemented. Turkish courts are in the process of abandoning the controversial decisions they rendered that deemed Turkey a jurisdiction with a conservative attitude towards arbitration. Furthermore, the establishment of ISTAC in 2016 made arbitration a viable option for many Turkish enterprises, including small and medium-sized enterprises.

6. Discuss any notable recent or upcoming reforms or initiatives affecting court proceedings in your jurisdiction (including any changes as a result of the covid-19 pandemic).

While the covid-19 pandemic continues to have a huge impact on litigation proceedings all over the world, the Ministry of Justice has introduced online hearings at civil courts with the Law on the Amendment of the Civil Procedure No. 7251, which was published in the Official Gazette on 28 July 2020.

Article 17 of the law has made amendments in article 149 of the Code of Civil Procedure No. 6100 and has regulated that courts may decide for hearings by voice and video transmissions upon the request of one of the parties in certain cases or ex officio.

Online hearings were already being conducted in criminal courts since 2012. In addition, as per article 149 of the Code of Civil Procedure No. 6100, which entered into force in 2011, civil courts hearings were allowed to be conducted through audio and video transmission. However, according to the aforementioned provision, the plaintiff and the defendant had to have a joint request with a valid justification in this regard and this request had to be accepted by the court in order for the hearing to be carried out electronically. Due to the adverse effect of the covid-19 pandemic on litigation proceedings, the Ministry of Justice introduced this new regulation in which the requirement of joint request of the parties was removed and it was decided to hold a hearing upon the request of one of the parties.

7. What have been the most significant recent trends in arbitral proceedings in your jurisdiction?

In terms of legislative background, Turkey is no different to any other continental European jurisdiction. It ratified the New York Convention (NYC) in 1992 and its parliament successfully enacted Turkish International Arbitration Act (TIAA) in 2001, which mirrors the principles enshrined under UNCITRAL Model Law. Ever since, the legal framework has not undergone major changes.

While the judiciary has had a hard time adapting itself to contemporary international arbitration practices, its initially conservative approach towards arbitration has moved towards a friendlier one. An example of this shifting approach is reflected in the interpretation of arbitration agreements concluded in languages other than Turkish. Previously, the Court of Cassation had annulled an arbitral award because the arbitration agreement in question was not drafted in Turkish. This was due to Law No. 805, dated 10 April 1926, which mandated the use of the Turkish language for Turkish business enterprises in all activities engaged in within Turkey. This principle is enshrined under article 1 of Law No. 805.

Pursuant to article 2 of the same law, the mandate is also applicable to foreign companies, yet narrower in its scope. The provision explicitly lists what needs to be done in Turkish (foreign companies’ communications, transactions and exchanges with Turkish companies) and what books and documents foreign companies need to submit to Turkish state authorities.

Problems arise from the wording adapted in the Law No. 805, article 1, which stipulates the regime on the relations between Turkish companies’ enlisted ‘contracts’ explicitly, whereby article 2 does not. The ambiguity in the wording has led to controversy with respect to the drafting language of arbitration clauses between Turkish companies and their international business partners.

Until very recently, the court found that the parties were not allowed to rely on an arbitration clause drafted in a foreign language. However, from late 2020, the court found arbitration clauses written in foreign languages valid, even in scenarios where arbitration agreements are concluded between Turkish parties.

8. What are the most significant recent developments in arbitration in your jurisdiction?

Third-party funding is a hot topic among Turkish arbitration practitioners. Third-party funding is not regulated in Turkey and is preferred generally by the claimants in investment arbitrations.

Like all other jurisdictions, remote hearings have become very popular because of the covid-19 pandemic. ISTAC responded very swiftly to the new normal and launched the online hearing procedure in April 2020.

Also in April 2020, another arbitration centre, the Energy Disputes Arbitration Centre, was launched in Ankara, as an institution specialising in infrastructure and energy disputes.

9. How popular is ADR as an alternative to litigation and arbitration in your jurisdiction? What are the current ADR trends? Do particular commercial sectors prefer or avoid ADR? Why?

As explained briefly in question 1, mediation has become very popular in the past several years. In 2017, the use of mediation became mandatory in labour disputes that arise from monetary claims, individual or collective employment contracts or reinstatement claims. Today, it is also mandatory for commercial disputes for monetary receivables and compensation claims, and, with the latest amendments, disputes arising from consumer law have also become mandatory.

Due to the ability of parties to be actively involved in the process, the cost of mediation being lower than a lawsuit and parties getting results in a shorter time, mediation has become a frequently preferred method of dispute resolution. According to article 5/A of the Turkish Commercial Code, the mediator finalises the application within six weeks of the date of assignment. This period can be extended by a maximum of two weeks by the mediator in compulsory cases. This time period determined by the law allows disputes to be resolved faster than litigation proceedings.

Additionally, although a commercial dispute is subject to mandatory mediation, the settlement of the dispute through voluntary mediation is not prevented. The parties may always apply for voluntary mediation before mandatory mediation.

Further, the mediation mechanism in Turkey is strictly confidential as per article 4 of the Law on Mediation in Civil Disputes. It is standard practice to hold mediations on a confidential, without prejudice basis. Parties are also prohibited from using the other party’s material brought to the mediation meeting in subsequent court or arbitration proceedings. This strict confidentiality procedures generally raise parties’ interest in mediation proceedings as well.

10. What is the position in relation to litigation funding in your jurisdiction? Is funding available? Have there been any significant developments in this area in your jurisdiction?

Third-party funding in not very common in Turkey and there is no specific law regulating it. Therefore, third-party funding is subject to the general rules of Turkish Code of Obligation and the principle of freedom of contract will apply.

As in other jurisdictions, monetary claims and other claims of a monetary nature are more likely to be funded by a third-party funder in Turkey.

There has not been a recent development for third-party funding in Turkey. However, as the tendency to resolve disputes through alternative dispute resolution and arbitration has risen greatly of late, we foresee that the use of third-party funding will also increase.

The Inside Track

What is the most interesting dispute you have worked on recently and why?

The most interesting dispute I was recently involved in related to enforcement of a foreign arbitral award in Turkey. The dispute is particularly interesting due to its fragmented nature, which gives rise to debate over assignment of receivables, collateral requirement applicable to foreign plaintiffs, impact of annulment lawsuits on enforcement of foreign arbitral awards, provisional attachments and parallel criminal proceedings.

What do you consider to have been the most significant legal development or change in your jurisdiction of the past 10 years?

The most significant legal development in the context of commercial litigation is the transformation of the Turkish judiciary from a two-tiered system to a three-tiered system. The three tiers now comprising the Turkish judiciary are the courts of first instance, the Regional Courts of Appeals and the Court of Cassation.

Equally important is the introduction of compulsory mediation for commercial disputes. Commercial mediation has the potential to reduce the workload of courts, shorten the duration of proceedings and lower the associated litigation costs. While it is still a recent development, there have already been visible benefits. Most importantly, it will help establish the concept of alternative dispute resolution in Turkey for the future.

What key changes do you foresee in relation to dispute resolution in the near future arising out of technological changes?

I expect that AI and blockchain technology will revolutionise dispute resolution practices all over the globe as well as in Turkey. AI, in particular, will change the legal scene as it will reduce the time spent by legal professionals even though the margin where we can employ AI technologies could be relatively narrow in comparison to the common law systems where its discovery and disclosure rules open wider possibilities for AI.