The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Arbitration Convention" or the "New York Convention", is one of the key instruments in international arbitration. The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration.
Although arbitration is considered as a reasonable form of alternative dispute resolution, foreign arbitral awards are also subject to an enforcement procedure. In this sense, the New York Convention provides a simplified procedure for the recognition and enforcement in the contracting States. According to the Turkish constitution, duly signed and ratified treaties have equal standing as the national laws of Turkiye. As a result, Turkish courts directly apply the New York Convention without the need of implementing it.
In Turkiye, Turkish courts are legally required to enforce valid arbitration agreements regarding an arbitrable dispute and traditionally tend to be arbitration-friendly. As being a party to the New York Convention, Turkiye ensures that foreign and non-domestic arbitral awards will not be discriminated and such awards will be enforced and recognized in Turkiye provided that the award fulfils the specific conditions stipulated in the New York Convention.
The scope of the Convention set forth in Article I is for the ‘arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought’. Therefore, the state in which awards made is not necessarily to be a party to the Convention without prejudice the article I/3 provides the reciprocity declarations as Turkiye ratified the Convention with this reservation. As a result, the Convention will be applied in both states where the foreign awards made in a member state.
There are two types of awards considered as being foreign as per the article I/3 the Convention, and which are in this manner inside the extent of the Convention. One type of an award is that when the awards are granted in a jurisdiction which is different from the jurisdiction of the enforcement place. Accordingly, the award has to be rendered in a state other than Turkiye without taking into account the parties’ or arbitrators’ nationality or the applicable laws during the course of arbitration. As a result of this provision, an arbitral award within the context of the Convention, even if all parties to the arbitration are Turkish citizens, so long as the award is made in another Member State.
Another type of an award is when the award is granted in the enforcing state but it is considered as foreign -not domestic- according to the law of that state. In this sense, the Convention is also applicable to the enforcement of such awards. Therefore, under the Turkish law, provided that an award is not characterized as domestic, it falls within the scope of the Convention, regardless of whether it is rendered in Turkiye.
It is crucial to state that there are five grounds listed in Article V of the New York Convention which are the exhaustive grounds for refusal. It should be noted, however, that the defendant has the burden of proof and can only resist the enforcement of the award on the basis of the grounds set forth in Article V(1). On the other hand, the court can refuse the enforcement on its own motion on the grounds identified in Article V(2).
In this section, grounds for refusal given in the Convention are listed and briefly explained as follows:
- First of all, there should be a valid arbitration agreement between the parties. In this regard, the defendant may argue the incapacity of the parties or invalidity of the arbitration agreement. The general rule is that any natural or legal person who has the capacity to enter into a valid contract has the capacity to enter into an arbitration agreement. However, it is note that the governing law of incapacity is not clearly indicated in the New York Convention. In this case, the Court will examine the incapacity argument after determining the applicable law in accordance with Turkish law. As for invalidity, the defendants frequently argue that the arbitration agreement is not valid because it is not in writing as required in Article II. Illegality, duress or fraud are the other common examples of this ground. The court will examine this argument in accordance with the law chosen by the parties in the agreement. If there is no such choice, the applicable law is the law of the country where the award was made.
- The defendant’s right to fair hearing should not be violated in the arbitration procedure. In this respect, the defendant should be given proper notice of the appointment of the sole arbitrator or of the arbitration proceedings. In institutional arbitration, the notification procedure must be carried out in compliance with the relevant institution’s regulations. Moreover, the defendant should be able to present his case during the arbitration procedure. For instance, the defendants frequently argue that they were not granted sufficient time to submit their defence petition and evidence.
- The arbitral award should be issued within the scope of the arbitration agreement and the parties’ submissions. In this regard, the arbitral tribunal’s jurisdiction is limited to deciding the issues that the parties have agreed to submit to it for determination.
- The enforcement of the award may be refused if the composition of the arbitral tribunal and the arbitration procedure was not in compliance with the arbitration agreement, or in the absence of an agreement on these matters, was not in accordance with the law of the country where the arbitration took place.
- The enforcement of the award may be refused, if the arbitral award has not become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. At this point, it is noteworthy to say that bindingness is indicated in the New York Convention is different than the finalization of the foreign judgments or arbitral awards. It is argued that “one of the principal innovations of the New York Convention was its abandonment of the double exequatur procedure, in addition, the New York Convention specifically abandoned the finality requirement.”
- The court can refuse enforcement of an award on its own motion if subject matter of the difference is not capable of settlement by arbitration under Turkish law. For instance, the TCPL Act No. 6100 provides that disputes arising from in rem rights on immovable property and disputes that are not governed by the parties’ mutual agreement are not arbitrable.
- The Court also examines whether the arbitral award is contrary the public policy of Turkiye. Transactions against Turkish tax, customs or foreign exchange regime, obligations arising from contracts based on drug trafficking or gambling are among examples to Turkish public policy.
Finally, with respect to the reservations to the New York Convention, it provides two reservations both of which a State may adopt when acceding to the Convention. The first reservation allows a State to apply the New York Convention on the basis of reciprocity, and the second one allows a State to apply the New York Convention only to those transactions considered commercial under its own national law.
Subject to the statutory restrictions, it should be noted that Turkiye signed the New York Convention with two reservations which mentioned above. In other words, the awards granted only in the territory of another contracting State can be enforced in Turkiye, and only the awards based on commercial disputes can be enforced in Turkiye. As the New York Convention refers to the national law, the Convention can be applied only if the dispute indicated in the arbitral award falls within the scope of commercial affairs in Turkish law.
1 Turkiye ratified and became a party to the New York Convention in 1992
2 Article 90 of the Constitution states that ‘International agreements duly put into effect have the force of law.’
3 See Article V(1)(a) of the New York Convention
4 See Article V(1)(b) of the New York Convention
5 See Article V(1)(c) of the New York Convention
6 See Article V(1)(d) of the New York Convention
7 See Article V(1)(e) of the New York Convention
8 Born, Gary (2009) International Commercial Arbitration (South Asian, Reprint Edition, Vol. I). New Delhi: Wolters Kluwer India, p: 1008
9 See Article V(2)(a) of the New York Convention
10 See Article 408 of the TCPL Act No. 6100
11 See Article V(2)(b) of the New York Convention
12 See Article I(3) of the New York Convention