Arbitration Regimes in Other Countries
This chapter will explore the laws and procedures in relation to arbitration in the jurisdictions of Germany, Turkey and South Korea. The areas covered under each jurisdiction are legislation on arbitration, arbitration agreement, composition of arbitral tribunal, jurisdiction of the arbitral tribunal, the arbitral proceedings, role of the courts and making an award in these countries.
- German Legislation on Arbitration
The revised Arbitration Act is based upon the UNCITRAL Model Law. It came into force on 1 January 1998 and is now codified in the 10th Book of the German Code of Civil Procedure. With the goal of creating an arbitration-friendly jurisdiction that would be attractive to foreign practitioners, the German legislature favored a legal structure that would be familiar to the arbitration community as an accepted international standard. The Arbitration Act applies to all arbitral proceedings where the place of arbitration is situated in Germany, whether national or international. Additionally, certain sections of the Act, such as those regarding dismissal of court actions where a valid arbitration agreement exists, court-ordered interim measures, court assisted taking of evidence, and enforcement of foreign awards apply irrespective of the place of arbitration.
One of the guiding principles in drafting the Arbitration Act was to keep any changes to the UNCITRAL Model Law that would inevitably be necessary to accommodate existing national laws to a minimum. The law makers were diligent in adhering to this principle so that German law does bear unwelcome surprises for the unwary arbitral party or for foreign arbitration practitioners. Germany is a party to a number of international agreements pertaining to arbitration, including the New York Convention, the European Convention on International Commercial Arbitration of 21 April 1961, the Protocol on Arbitration Clauses of 24 September 1923 (Geneva Protocol), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 18 March 1965 (ICSID Convention).
- Arbitration Agreement
Parties can conclude arbitration agreements to resolve disputes as long as the disputes are of nature that can be settled by the parties. In fact, a broad range of disputes are arbitrable under German arbitration law. Any claim involving an economic interest can be the subject of an arbitration agreement. Even an arbitration agreement concerning claims not involving an economic interest has legal effect to the extent that the parties are entitled to conclude a settlement on the issue in disputes.
The content requirements of a valid arbitration agreement are set forth in the Arbitration Act’s definition of an arbitration agreement: “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”. In other words, to be valid under German law, an arbitration agreement must be clearly linked to a particular legal relationship, such as an underlying contractual relationship, or to a specific existing dispute. Arbitration agreements that refer only generally to future disputes between entities or individuals are invalid. However, to the extent that an agreement to arbitrate is linked to a definite legal relationship, the arbitration agreement may refer to any disputes that arise from that legal relationship in the future.
Regarding Form requirements, the arbitration agreement, generally, itself must be contained either in a document signed by the parties or in an exchange of communications, such as letters, faxes or telegrams, which provide a record of the agreement. The Arbitration Act supplements and relaxes the UNCITRAL Model Law’s provisions regarding form requirements with provisions in the German Code of Civil Procedure. In Germany, the requirement that an arbitration agreement is relaxed, in that the law provides for deemed assent by silent party to an arbitration agreement. That is, the form requirement shall be deemed to have been met if: (i) the arbitration agreement is contained in a document transmitted from one party to the other party or by a third party to both parties; (ii) no timely objection is raised; and (iii) the contents of the transmitted document are considered to be part of the contract in accordance with common practice.
Special provisions for arbitration agreements apply in the particular circumstances involving charter or consumer parties. Arbitration agreements to which a consumer is a party must be contained in a document which (i) has been personally signed by the parties; and (ii) which contains no other agreements other than those referring to the arbitral proceedings, to the extent the agreement has not been certified by a notary. A party waives any objection as to the non-compliance of an arbitration agreement with the form requirements if it argues the merits of the dispute in the arbitral proceedings without reservation.
- Constitution and Composition of the Arbitral Tribunal
The Arbitration Act provides that failing an agreement between the parties on the appointment of the arbitrators, a sole arbitrator shall, if the parties are unable to agree on his appointment, be appointed by the court upon request of a party. In arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus, appointed shall appoint the third arbitrator who shall act as chairman of the arbitral tribunal. If a party fails to appoint the arbitrator within one month of receipt of a request to do so or if the two arbitrators fail to agree on the third arbitrator within one month of receipt of a request to do so or if the two arbitrators fail to agree on the third arbitrator within one month of their appointment, the appointment shall be made by the court upon request of a party. However, if an agreed-upon nomination procedure places one party at a distinctly unfair disadvantage, the Arbitration Act explicitly allows for recourse to a German court. Upon application by a party, a German court may disregard the agreed-upon appointment procedure for naming an arbitrator and appoint an arbitrator itself if determines that the selection process provides one party with a predominant position.
An arbitrator may be challenged only if circumstances exists that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. If a party has appointed an arbitrator or otherwise participated in the arbitrator’s appointment, the party may only base any challenge of the arbitrator upon reasons, which the party has become aware of after the appointment has been made. The parties are free to agree on a procedure for challenging an arbitrator. In the absence of such agreement, a party who intends to challenge an arbitrator has two weeks after becoming aware of the constitution of the arbitral tribunal or any basis for challenge to send a written statement to the arbitral tribunal of its reasons for challenging an arbitrator’s appointment. Unless the challenged arbitrator withdraws or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. If a challenge is unsuccessful, the challenging party may request judicial review within one month or some other mutually agreed-upon time limit after having received notice of the failed challenge.
- Jurisdiction of the Arbitral Tribunal
Generally, the arbitral tribunal has jurisdiction to determine whether it has the requisite jurisdiction to decide the dispute before it. Challenges to an arbitral tribunal’s jurisdiction must be raised not later than the submission of the statement of defense. Once challenged, the arbitral tribunal must review and rule on its jurisdiction over a dispute pursuant to the relevant arbitration agreement. To the extent it determines that it is competent to hear and decide the matters in dispute, the arbitral tribunal will generally issue an interim award, from which the parties may seek relief in a court of law. In Germany, it is the court and not the arbitral tribunal who has the final right of decision on whether an arbitral tribunal has jurisdiction to determine a dispute or not.
The Arbitration Act provides a dual system for parties to arbitration to seek interim measures of protection. That is, both the courts as well as the arbitral tribunal are vested with the power to order interim measures, unless otherwise agreed by the parties. A party has the choice between a court and the arbitral tribunal at all stages of the arbitral proceedings. In some cases, court proceedings might be advantageous since, unlike in arbitration proceedings, they do not necessarily require that the opposing party be heard before issuing an order for interim measures. The arbitral tribunal has discretion to order interim measures it considers necessary given the subject matter in dispute and may require a requesting party to provide appropriate security in connection with the interim measure.
Arbitral tribunals may not enforce their own orders for interim measures. Rather interim measures ordered by an arbitral tribunal can only be enforced by a court. A court can declare an arbitral tribunal’s order for interim measures enforceable and even alter the arbitral tribunal’s order for interim measures to make the order enforceable. If it is later determined that an interim measure ordered by an arbitral tribunal was unjustified from the outset, the party who sought interim measure is obligated to compensate the other party for any damage suffered as a result of enforcement of the interim measure or caused by the harmed party’s provision of any security to avoid enforcement. These claims for compensation are to be made in the arbitral proceedings and decided in the ensuing award.
- The Arbitral Proceeding
Section 1042 of German Civil Procedure Code has defined the procedural rules in the same general terms as Articles 18 and 19 of the UNCITRAL Model. The parties must be treated equally and given a full opportunity to present their case. In addition, the parties must be allowed to use counsel to represent them in the proceedings. Subject to these mandatory rules, the parties are free to determine the procedure themselves y individual agreement or by referring to a set of arbitration rules. If the parties have not agreed on a specific procedure, which is usually the case, it is up to the discretion of the arbitral tribunal to determine the procedure within the framework of mandatory rules.
The parties are free to choose the language or languages to be used in the arbitral proceedings. The parties’ choice of language then applies to all written statements, hearings, awards, decisions, or any other communication by the arbitral tribunal unless the parties agree otherwise. If no agreement on language exists, the arbitral tribunal determines the appropriate language. Conducting arbitral proceedings in English is no problem for most German arbitration practitioners acting as counsel.
The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration is determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. As the parties do not need to hold hearings at the place of arbitration, consent to one party’s suggested place of arbitration can be traded for consent to holding certain hearings elsewhere.
If the respondent fails to submit his statement of defense, the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations. If any party fails to appear at an oral hearing or to produce documentary evidence within a set time limit, the arbitral tribunal may continue the proceedings and make the award on the evidence before it.
The Arbitration Act leaves it to the arbitral tribunal to decide on how to approach fact-finding and the gathering of evidence if there is no specific agreement by the parties. Thus, the arbitral tribunal has necessary flexibility to adapt to the wishes and needs of the parties. It can either leave it up to the parties to collect the necessary evidence and present it to the arbitral tribunal or it can actively manage the proceedings by deciding on issues of evidence from the beginning and only ordering the relevant and material evidence. Any preferences by the parties on such issues should be taken into consideration as one factor in the arbitrator selection process.
In German court proceedings, documentary evidence is by far the most important means of evidence. However, the statutory provisions in German civil procedure allow only a limited production of documents which is by no means comparable to discovery or production of document exercises in common law countries. Such “discovery” rules are not applicable in arbitral proceedings in Germany. However, the right of an arbitral tribunal to require production of documents must, nevertheless, be seen against this backdrop. While under the Arbitration Act, arbitral tribunal is entitled to order the parties to produce documents.
There are no specific provisions concerning witnesses in the Arbitration Act. Nevertheless, it is generally accepted that an arbitral tribunal may hear witnesses in an oral hearing or accept written witness statements as evidence. This can occur upon request of a party or upon the initiative of the arbitral tribunal. An arbitral tribunal may question a witness itself or allow a party counsel to examine the witness. In German court proceedings, a witness is generally questioned by the judge. There is no cross-examination in a common law sense, although it is possible for counsel to put direct questions to a witness with approval of the court. Since arbitration proceedings are flexible than court proceedings, cross examinations are not categorically excluded in German arbitration practice. The actual course of the proceedings will usually depend on the origin and expectations of the parties and their counsel, as well as that of the arbitrators. An arbitral tribunal has no means of compelling a witness to attend an oral hearing, nor can it administer oaths. If a witness refuses to cooperate or if the arbitral tribunal wishes to verify the truthfulness of testimony, it must apply to a court for assistance.
Section 1049 of German Law, which adopts Article 26 of the UNCITRAL Model Law, contains rules regarding tribunal-appointed experts. An expert appointed by an arbitral tribunal must satisfy the same impartiality and independence requirements as an arbitrator. The parties may agree to exclude tribunal-appointed experts and only allow party-appointed experts. Even if the arbitral tribunal has appointed an expert, the parties are free to appoint their own experts. A foreign practitioner should be aware that an arbitral tribunal with a predominantly German law background will regularly rely to a greater extent on a tribunal-appointed expert than on the outcome of a “battle” between the party-appointed experts. However, a foreign practitioner may well expect that the arbitral tribunal use its given flexibility and discretion to develop a cost-and time-efficient solution (including experts’ conferencing or joint statement of the experts) in line with the parties’ expectations, goals and interest.
The Arbitration Act does not explicitly deal with confidentiality issues, neither is there any relevant case law. There is, however, broad consensus that arbitrators are bound to treat the proceedings confidentially. The parties are, at least according to the prevailing opinion among legal commentators, not restricted from disclosing to the public the existence of arbitral proceedings or particular details thereof, provided there is no explicit agreement to the contrary. Therefore, the parties are well advised to consider the confidentiality issue in the arbitration agreement itself or at the outset of the arbitral proceedings. It may occur in commercial disputes including IP disputes that a party intends to rely on evidence, such as highly confidential industrial process engineering know-how, which it does want to share with the opposing party who might be a competitor. A foreign practitioner should not expect that restricting the disclosure of confidential information to counsels’ or arbitrators’ eyes is generally accepted. However, in such cases counsel could at least refer to the established “Dusseldorf procedure”, which assures that certain confidential information is not submitted to a purported infringer. In addition, reference could be made to the WIPO Arbitration Rules’ concept of a confidentiality advisor who will determine whether certain information is to be classified as confidential, and, if so, decide under which conditions and to whom it may in part or in whole be disclosed. German constitutional law allows restrictions of the principle of the right to be heard under certain circumstances. Thus, it is usually up to counsel and the arbitral tribunal to identify a reasonable solution for the specific case at issue.
- Role of Courts in Arbitral Proceedings
As a general rule, German courts may not intervene in a pending arbitration. The very limited exceptions include:
(i) challenge of the arbitral tribunal’s jurisdiction;
(ii) appointment of arbitrators;
(iii) decision upon challenge of arbitrator;
(iv) interim measures of protection;
(v) court assistance in taking evidence and other judicial acts.
In terms of judicial support for arbitration, the Arbitration Act differs from the UNCITRAL Model Law in that it foresees court assistance not only in the taking of evidence, but also other judicial acts as prescribed in Section 1050 of German Procedure Code such as facilitating services of process. The arbitral tribunal or a party with the approval of the arbitral tribunal may request assistance from a court in taking evidence or request performance of other judicial acts, which the arbitral tribunal is not empowered to carry out, such as service.
- Making of an Award and Termination of Proceedings
Principle of section 1051 stipulates that the arbitral tribunal shall decide dispute in accordance with such rules of law as are chosen by the parties and are applicable to the substance of the dispute. In accordance with the Arbitration Act, the award shall be made in writing and signed by the arbitrator or arbitrators. In arbitral proceedings with more than one arbitrator, the signatures of the majority of all members of the arbitral tribunal shall suffice, provided that the reason for any committed signature is stated. The award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is awarded on agreed terms. Further, the award shall state its date and place of arbitration. German law does not prescribe the time period within which the award must be delivered, but parties are free to stipulate to any time limits. There may be situation which arises when arbitrator refuses to participate in a decision. In that case, the Arbitration Act allows the remaining arbitrators to make a decision without the abstaining arbitrator to the extent the parties have not agreed otherwise. Pursuant to Section 1058 (1)-(2) of German Procedural Code, parties may request, within one month of an award, that the arbitral tribunal correct any errors, interpret the award, or enter supplementary awards. Finally, The Arbitration Act confers upon awards made in arbitrations, where the seat is in Germany, the status as a final judgment of the courts.
The Arbitration Act provides that unless the parties agree otherwise, the arbitral tribunal shall allocate the costs of arbitration as between the parties in an arbitral award, including costs the parties incurred in pursuing their claim or defense. It shall do so at its discretion and take into consideration the circumstances of the case, in particular, the outcome of the proceedings. German parties and practitioners are used to the rule that “costs follow the event” and accordingly, have a strong preference for not granting the arbitral tribunal as much discretion provided for in Section 1057 of German Procedural Code.
Parties to arbitration can seek recourse from an arbitral award by filing an application to set aside the award with the proper court. The court can set aside an arbitral award if the petitioning party establishes that at least one of the following circumstances existed.
– a party to the arbitration agreement was under some incapacity pursuant to the law applicable to him; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under German law;
– the petitioning party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
– the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of submission to arbitration; provided that if the decisions on matters submitted to arbitration can be separated from those not submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside;
– the composition of the arbitral tribunal or the arbitral procedure was not in accordance with a provision of the Arbitration Act or with a permissible agreement of the parties and this presumably affected the award;
– the court can also set aside an arbitral award if it finds that the subject matter of the dispute is not capable of settlement by arbitration under German law; or
– recognition or enforcement of the award leads to a result that is in conflict with public policy/interest.
Unless the parties agreed otherwise, an application to the court to set aside an award may not be made more than three months after the petitioning party received the award. However, the three-month time limit is not applicable to the court in determining whether the award conflicts with public policy or involves a non-arbitrable matter when refusing to declare the enforceability of an award. If a German court has declared an award to be enforceable, a request for setting aside is precluded. The Arbitration Act reverts back to the arbitration agreement in cases where an arbitral award has been successfully challenged, to the extent the parties have not agreed otherwise. Thus, a setting aside of an arbitral award does not dispose of the arbitration agreement altogether.
- Arbitration Law of Turkey
The Turkish International Arbitration Code (TIAC) is the primary set of rules governing international arbitration proceedings in Turkey. The Turkish international Arbitration Code is mostly based on UNCITRAL Model Law with certain modifications. UNCITRAL Model Law is chosen as the basis for the new law specifically to enable international arbitration practitioners to conduct arbitration in Turkey under contemporary and well known international standards. TIAC is applicable to “international” arbitrations the definitions and concept of which will be discussed in details below. It is important to note that before TIAC came into effect on 5th July 2001, there was no distinction between domestic and international disputes. The foreign element in a dispute was not considered to qualify whether the arbitration was domestic or international. TIAC replaced this requirement with the approach of a “foreign element”. The parties or arbitrators are free to declare that TIAC should govern their dispute. Other than by this declaration, for a dispute to be governed by TIAC, it must have a “foreign element” and the place of arbitration must be in Turkey. That is not to say that all of the hearings should be held in this place; merely that the place of arbitration should be stated in the arbitration agreement to be in Turkey.
Foreign element simply means contact with some system of law other than that of the “forum”, which is the country whose courts are seized of the case. The definition of a “foreign element” has deciding role in the application of TIAC and as such the definition is many faceted. Once it is established that a dispute has foreign element, it becomes international by nature under TIAC. The consequence of being “international” is that an arbitration arising from an international dispute is governed by TIAC, while domestic arbitration is governed by the Turkish Civil Procedure Code (TCCP). Article 2 of TIAC lists the circumstances in which a foreign element exists and the dispute can be settled under TIAC as an international arbitration
- Arbitration Agreement
The arbitrability of a dispute relates to whether the subject matter of the dispute may be validly considered as an arbitration case. Under Turkish law, the general principle for the arbitrability of a dispute is that the dispute should be subject to the parties’ will alone that is, the subject matter of the dispute should not be subject to any outside influence or other restraints. In this case the dispute will generally be arbitrable. Commercial matters can be seen as an example of this; since commercial matters are subject to the parties’ will under the principle of pacta sunt servanda where they are arbitrable under Turkish law. Both the TIAC and the Turkish Civil Procedural Code provides this principle. Arbitrability is one of the fundamental requirements for a valid and enforceable arbitration agreement and award. If the subject matter of the dispute is not arbitrable, the Court cannot be asked to decline the jurisdiction even if there is an arbitration agreement. Article 15(A) of TIAC states that an arbitral award that has been rendered can be set aside due to the non-arbitrability of the dispute. The judge is free to determine the arbitrability of the subject matter of the dispute sua sponte and does not have to wait for an application for its review by one of the parties. When an award is set aside due to non-arbitrability, there is no longer recourse to arbitration even if the contract relating to the dispute contains a clear arbitration clause. The Claimant has no alternative other than to bring a lawsuit to the relevant Court as it can no longer refer the dispute to arbitration. For foreign awards made aboard, the principle stands; the recognition or enforcement of the award can be rejected due to non-arbitrability under TIAC and the related Turkish laws.
Though Article 15(A) of TIAC categorizes non-arbitrability and public policy as separate causes for the annulment of an arbitral award, the two are often inseparable concepts in Turkish Court practice. Family law disputes and criminal issues are obviously non-arbitrable, but this is both due to the fact that the subject matter of such disputes is not necessarily a matter of free will to the parties and because the subject matter carries an element of public policy. Administrative law disputes are outside of the auspices of arbitration because of their public policy nature, however, as already mentioned, after the amendment of the Constitution in 1999, the approach towards concession contracts changed. Where concession contracts used to be considered as administrative contracts and were governed by the Turkish Administrative Courts (Counsel of State), they are now arbitrable under TIAC as Private Law contracts. There are some issues closely related to commercial matters which may not be arbitrable under Turkish law. For instance, bankruptcy disputes are not arbitrable for the public policy consideration of the protection of the creditors. In one of its decisions, the Turkish Supreme Court clearly held that bankruptcy disputes are not arbitrable.
In general, the arbitration agreement provides the basis for arbitration. In order for arbitration proceedings to be brought, the parties must have concluded a valid arbitration agreement amongst themselves. Though TIAC specifically provides a definition of the arbitration agreement, the generally accepted definition is an agreement amongst parties. TIAC explains arbitration agreement as an agreement whereby two or more parties agree that a dispute, which has arisen or may arise in connection with a particular legal relationship, and will be finally settled by one or more arbitrators. The essential element of the arbitration agreement is parties’ intention to arbitrate. Thus, the parties’ intention to refer the dispute to arbitration needs to be as clear as possible.
A simple one-sentence arbitration agreement is acceptable if the parties agree to it. Simplicity is important in such agreements and often parties to contract do not want complicated arbitration clauses. Specifically in cases where the parties refer to institutional arbitration, a simple arbitration clause is better since the rules referred regulate the proceeding in details. The location of the arbitration is always advised to be stated in the arbitration clause. If the parties prefer a well-drafted arbitration clause, the parties agree to the issues such as selection and qualification of the arbitrators, language of Arbitration, governing law, and expenses. Article 4 of TIAC provides that the arbitration agreement shall be valid if it complies with the requirements of the law chosen by parties to apply to the arbitration agreement or failing such a choice if it complies with the requirement of Turkish law.
If the respondent in an arbitration proceeding participates in the proceedings without any jurisdictional objection, the Respondent is considered to have been accepted by its conduct that the arbitration proceedings were correctly constituted and the validity of the arbitration agreement will not be opened to challenge at a later stage. In particular, the Respondent would not be at liberty to claim that the arbitration agreement was not valid during the setting aside or enforcement proceedings, in the light of honesty principle. According to Article 4 of TIAC, an arbitration agreement may be in the form of arbitration clause in a contract or a separate agreement between the parties or a reference to a standard contract containing arbitration clause. In practice, most parties will draft an arbitration clause as part of the main contract rather than a separate arbitration agreement.
A separate arbitration agreement may also be usually drafted if the parties agree on arbitration after the principle contract has been made. This may be the case, for instance, where the dispute has arisen after the principle contract has been made and the parties subsequently agree to take the dispute to arbitration even though they did not originally have an arbitration clause in their contract. At any time after a dispute arises the parties are free to constitute an arbitration agreement for the dispute. Even once the dispute is pending before a Turkish Court the parties are free to agree to arbitrate. The Court would then simply transfer the file to the arbitral tribunal in accordance with Article 5 of TIAC.
It is also theoretically possible to refer a non-contractual dispute to arbitration and parties would have to draft a separate arbitration agreement for such disputes. As long as the arbitrability requirement is met, non-contractual disputes can form the subject matter of arbitration proceedings. However, an arbitration agreement concerning a tort issue would necessarily be formulated after the dispute has arisen. The reference in a contract to a standard contract containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract to which the dispute relates. When parties refer to standard arbitration rules or standard contracts containing arbitration clause they have to make sure that the arbitration institute that they are referring to actually exists and that the name or abbreviation of the institute and the standard rules referred are spelled correctly.
- Composition of the Arbitral Tribunal
A dispute can go to arbitration on the basis of an agreement between disputing parties to submit the discipline to resolution by arbitration, where an arbitrator or a tribunal of arbitrators is appointed and has been given the legal authority to act by the parties. The composition of the arbitral tribunal or the appointing of the sole arbitrator is a characteristic and crucial issue in arbitration. It can be asserted that the composition or the arbitral tribunal will have a huge effect on the resolution of the dispute. In addition, the composition of the tribunal will have some important legal consequences related to the starting date for the arbitration and can have repercussions if a party applies to have the award set aside or enforced later on. These consequences are mostly related to the validity of the appointments of the individuals who will act as arbitrators under the conditions set out in the Turkish International Arbitration Code.
Article 7 of the Turkish International Arbitration Code gives parties the freedom to select sole arbitrator or members of the tribunal. The selection of the arbitrators is a crucial issue in the arbitration process and the parties have to be able to determine how to select or appoint the arbitrators. The parties’ freedom to select the arbitrators also includes their freedom on the determination of the number, nationality, qualifications and appointing authority of the arbitrators. The parties may also refer to the rules of arbitration institute and in this case, the rule concerning selection of arbitration will be applicable. In short, party freedom to select arbitrators is a fundamental right and Turkish law respects the parties’ determination of the arbitrators. If the Parties choose not to use this freedom to select their arbitrators then the Law also provides for the Turkish Courts to give their assistance in appointing the arbitrators. The competent court for the appointment of the arbitrator is the First Instance Court where the defendant is domiciled or has its habitual residence or place of business. If the Defendant does not have a domicile, habitual residence or place of business, the First Instance Court of Istanbul has jurisdiction as the default court. If the situation is such that the Court has to appoint any of the arbitrators then the decision of the Court is final and there is no recourse to appeal. In this way any delay due to a possible appeal of the decision on the appointment of the arbitrator is avoided.
Article 7C of Turkish International Arbitration Law provides three grounds on which, one may challenge an arbitrator’s appointment. An arbitrator may be challenged if the appointed arbitrator does not meet the qualifications that the parties have determined. If either party has cause to believe that an arbitrator lacks the requisite degree of objectivity, or is for some reason incapable of performing his duties fairly and impartially, then it is accurate that such party has an opportunity to object to that person sitting on the tribunal. For instance, in the arbitration agreement, parties can agree that the arbitrators have to be fluent in English or to be a lawyer. If the determined qualifications are not met, any party may challenge the appointment of the arbitrator. An arbitrator may also be challenged if existing circumstances give rise to justifiable doubts as to his impartiality or independence. The independence of an arbitrator can be questioned on the relationship between the arbitrator and the parties or merit of the case. The impartiality of the arbitrator on the other hand, can be seen by his conduct of the arbitration proceedings. Finally, an arbitrator may be challenged under any of the provisions for challenge under the arbitration law determined by the parties.
Grounds for challenging the arbitrator may also have been determined by the parties. For instance, the parties may agree that if there are multiple arbitrations, an arbitrator is not to be appointed for more than one of the arbitrations; otherwise this would constitute grounds for challenging the arbitrator. When dealing such challenges, a balance must be struck between responding fairly to legitimate concerns, while seeking to discourage frivolous complaints and the disruption that flows from them. Even if a challenge is made early and ultimately unsuccessful, it will delay the conduct of the arbitration as well as leading to additional costs being incurred. It is not unknown for a party to seek to delay the arbitral process by raising unwarranted objections to a nominated arbitrator, or to derail the process entirely by a late application to remove an arbitrator midway through the case.
- Jurisdiction of the Arbitral Tribunal
Arbitration cannot exist without the parties’ agreement to arbitrate. The authority to hear the parties and make an award exists only through the agreement of the parties. The arbitrator’s jurisdiction is based on the will of parties. If any party believes that the agreement to arbitrate does not exist or is not valid, the jurisdiction of the arbitrators to rule on the particular dispute that has arisen. In such cases, a challenge is perfectly justified.
The issue of competence deals with the jurisdiction of the arbitral tribunal or the court over the dispute at hand. The doctrine of competence-competence, which holds that an arbitral tribunal may determine questions as to its own jurisdiction, is an important aspect of arbitration law. It is observed that if arbitrators could not determine questions as to their own jurisdiction, the Respondent may abuse the court proceedings to delay the arbitration proceedings. This may disappoint the parties who were attracted by arbitration because of the expectation of a speedy resolution. The competence-competence approach manages to avoid the additional cost burdens that are often involved in standard court proceedings. It may be a point of debate amongst the parties as to whether the dispute should be handled by an arbitral tribunal or should go before a court. The jurisdictional objections are often concerned with whether the arbitration clause or agreement is valid; if the matters to be considered for arbitration are within the arbitration clause or agreement or if those matters are considered “arbitrable”. This is where the doctrine of Competence-Competence comes in. In such circumstances, the jurisdiction of the arbitrators must be decided. Under Article 7H of TIAC, arbitrators may rule on their own jurisdiction, including any objections with respect to the existence or validity of the arbitration.
Though arbitration is often a faster method of dispute resolution than recourse to national courts, it may still take some time for the Tribunal to render a final award. An interim relief or some sort of conservatory measure may be sought to preserve the status quo or prevent the project from suffering further damage even for arbitration proceedings before the eventual settlement of the dispute by the Tribunal. Under Article 6 of TIAC, an arbitral tribunal sitting in Turkey has the power to order an interim relief or conservative measure upon the request of either party.
Although the Turkish International Arbitration Law gives arbitrators the power to grant interim relief and conservatory measures, the parties’ right to agree otherwise is upheld. If there is no agreement to such restriction, the arbitrators have the power to grant interim relief or conservatory measures on the dispute as they deem fit upon the application of a party. The arbitral tribunal may request an appropriate security from the applicant as a condition for ordering such interim measures. The power of arbitrators to grant interim measures or interim attachments is subject to certain restrictions. Arbitrators may not grant an interim measure or interim attachment that needs to be enforced by an execution office or by another official authority or any measure that binds third parties. Article 6 of TIAC on the one hand authorizes the arbitrators to grant interim measures or interim attachment but on the other hand limit the authority granted. This is to protect third parties who are not party to arbitration agreement, from the effect of any such interim measure. Moreover, TIAC requires an application to the court if the assistance of execution office or any other official office is necessary to enforce the interim measure or interim attachment decision. Though the arbitrators have been given the jurisdiction to make interim measures by TIAC, it may be the case that the party refuses to voluntarily comply with the interim measure’s decision of the Tribunal. In such case, the Tribunal lacks the power of the Courts to enforce compliance with the interim order. In such cases the counter party may request the assistance of the competent Turkish Court in granting the interim measure of attachment.
- Arbitration Proceedings
Under the principle of freedom of contract, the parties are free to agree on the procedural rules that the sole arbitrator or arbitral tribunal will apply, or the parties may refer to a law, or to the rules of international or institutional arbitration. The TIAC has only a few mandatory rules such as equal treatment and due process. Where the parties fail to agree on the procedural rules for the arbitration, the sole arbitrator or arbitral tribunal will conduct the arbitration in accordance with TIAC. This important characteristic entails that the specific procedures can be tailor-made as appropriate for each dispute and adapted to the legal cultures of the parties and the arbitrators. In order to establish the appropriate procedures for a given arbitration, it is useful and efficient for the parties and the tribunal to make conscious decisions as early as possible on the procedures best suited to the dispute at hand. In making those decisions, it is possible to shape the arbitral proceedings so that the duration and cost of the arbitration are commensurate with what is at stake in the case and appropriate in light of the claims and issues presented. No matter which procedural rules are applied, under Article 8 of TIAC, the parties shall have equal rights. The parties must be given equal opportunities to present their claims and defenses. The parties are free to determine the procedural rules to be applied and may do so directly or by reference to given arbitration rules. In practice, it is one of the first actions of the arbitrators to state the procedural rules that are to be applied in the arbitration proceedings such as the language of the arbitration, the addresses to be used throughout or notifications that will be made. In the Terms of Reference, the arbitrators will state detailed information for the procedure to be applied to the arbitration.
The language to be used in the arbitration may have an important impact on the convenience and strategy or the arbitration proceeding. One of the advantages of arbitration is the freedom of the parties to choose the language of the proceedings. While the parties are free to choose the language of arbitration, one should mention a mandatory law of Turkey, restricting the usage of foreign languages in contracts between Turkish firms. Law No. 805 of April 10, 1926 requires all companies and enterprises of Turkish nationality to make all kinds of transactions, contracts, communications, accounts and records, if done in Turkey, in the Turkish language. This law does not apply to the language of the arbitration but may be relevant to the substance of the contract. Article 4 of the Law No. 805 says that no instrument and document made after the law’s entering in force in contradiction to Articles 1 and 2 may be taken into consideration in favor of the companies and enterprises. The Turkish International Arbitration Law, in Article 10, entitles the parties to choose the language or languages of arbitration. In order to avoid any translation, parties may agree to more than one languages and TIAC does not have any restriction to multi-lingual proceedings. Consequently, the parties are free to designate the language of arbitration as a language other than Turkish and may designate a main language and an alternative language or languages that will be accepted and used. In this way it is possible to reduce costs by eliminating the need for translations of documents for evidence and translators in the hearings.
The place of arbitration refers to the place where the arbitrator or arbitrators make the award. However, the place of arbitration is more than simply a geographical location as the place of arbitration carries legal and practical consequences from the law applicable to the arbitration to the Courts that have jurisdiction over challenges to the award. The place of arbitration is one of the criteria for determining whether the Turkish International Arbitration Law is applicable to the arbitration proceedings. Article 2 of TIAC provides that an arbitration proceeding has a foreign element and TIAC is applicable if the parties’ places of domicile or habitual residence or places of business are situated in a different locations from the place of arbitration, if determined in, or pursuant to, the arbitration agreement. Therefore, in the circumstances when the place of arbitration is in Turkey, if any party has business or habitual residence abroad, the arbitration has a foreign element and TIAC is applicable. Parties have the freedom to determine the place of arbitration. Alternatively, the parties may authorize an arbitration institution to determine the place of arbitration. Such an authorization may be given in the arbitration agreement or the parties may later agree to do so. The parties should choose the place of arbitration as clear as possible in order to avoid any unpleasant surprises that they did not mean. Thus, instead of stating the name of the country, the city should be stated. However, for instance if the arbitration provides “arbitration in Turkey” instead of stating any city, the arbitration agreement is still valid but the city will be determined in accordance of the institutional rules if there is any, or by the arbitrators.
Due process is a fundamental rule of international arbitration under which parties should be given opportunities to present their claims and defenses. However, if one of the parties or both parties default in the arbitration proceedings, it may affect the continuation of the arbitration procedure. In the case of the Claimant failing to continue with its obligations in the arbitration proceedings, the arbitration will terminate. The sole arbitrator or the arbitral tribunal shall terminate the arbitration if the claimant fails to submit his statement of claim in time without any justified reason. In this case, termination of the arbitral proceedings is inevitable as there would be no case to defend or decide upon. Under TIAC, the Claimant shall submit a statement containing the name, address and titles of the parties, its counsel, the arbitration clause or agreement, the legal relation or the contract that the dispute has arisen from, the facts supporting the claim, the points at issue and the relief or remedy sought. The Respondent shall state his defense in respect of these particulars. If the Claimant fails to communicate his statement of claim in accordance with TIAC and if it is not corrected within the time given, the arbitrator or the arbitral tribunal shall terminate the arbitral proceedings according to Article 11 of TIAC.
Under Turkish arbitral proceeding, the parties shall submit their evidence within the time limit determined by the sole arbitrator or arbitral tribunal. If the parties’ arbitration agreement governs the taking of evidence then it must be followed. Otherwise, the parties and the arbitrators may decide on the method of taking evidence after the arbitration has started according to Article 12/B of TIAC.
In domestic arbitration and Turkish court practice, documentary evidence carries substantial weight. It is not difficult to appreciate why reliance on documentary evidence is favored by international arbitral tribunals in Turkish arbitration practice. Presentation of the documents is easier and less time consuming; and, in an environment in which cross examination is regarded as an unreliable method of testing the evidence of a witness, the evidentiary weight of documentary evidence is clearly more substantial than that of oral evidence which is not tested by an effective challenge, either through lack of expertise on the part of the opposing party’s advocate or lack of time during the course of hearings.
As for taking of witness, Turkish arbitration law does not stipulate any provisions that explicitly deal with witness evidence. There may be one or two hearings to examine the submitted evidence and submissions of the expert witness. The main hearing is conducted primarily to examine the witnesses and expert witnesses. One should note that one of the fundamental characteristics of the arbitration system is party autonomy and the parties may govern these issues in the arbitration agreement or in a later agreement. The arbitral tribunal has no power to order a witness to appear and to give evidence. Each party presents witnesses on whose evidence it wants to rely. Although witness statements are not part of Turkish court proceeding, it is often found that in international arbitration practice in Turkey, the arbitral tribunal requires written witness statements.
The role and duty of an expert witness is to assist the court or tribunal in arriving at the true facts and position regarding technical issues within his area of expertise. In Turkish Courts it is very common practice that the Court appoints experts to examine issues related to the dispute. Similarly, in Turkish arbitration practice, experts are appointed by the sole arbitrator or arbitral tribunal to aid them in particular issues in order for them to come to their decision. Appointing expert for the technical matters like patent is very common. The tribunal appoints experts that focus on assisting the tribunal and are neutral. The independence of an expert witness is an important factor in determining the credibility and weight to be attached to the expert opinion. Appointing an expert is not compulsory and the arbitrators can make a decision without any expert opinion. However, if the dispute, especially intellectual property matter, is technical and the arbitrators are lawyers, then the technical issues would require clarification. In such cases an expert opinion will be necessary.
In terms of confidentiality, Turkish law does not explicitly provide protection on confidentiality during the arbitral proceedings. Under general principles of litigation in Turkey, all proceedings are open to the public but the court may be asked to declare that proceedings are to be remained private for general public. In practice, enforcement decisions are taken by reviewing the parties’ statements, and the document files. Compared to other forms of proceedings, hearings in enforcement disputes are extremely short. Since the Courts do not review the substance of the dispute but only the enforceability of the award, in practice the hearing does not harm the confidentiality of the merits discussed during the arbitral proceeding. Although details of the award or dispute are not discussed during the hearings, it should be noted that the names of the parties will be listed in the hearing room. Some decisions of the Turkish Supreme Court are published. The names of the parties are not published and referred to only their initials. For any important landmark decisions, there is no recognized procedure for avoiding the publication of confidential information.
- Extent of Court Intervention
When the parties have a validly concluded arbitration clause related to the matter in dispute, the Courts do not have principal jurisdiction on the dispute. Turkish Courts shall have jurisdiction only for the special circumstances that is clearly referred in TIAC. The issues that Turkish Courts have jurisdiction on are mostly supported in the arbitration. For instance, Turkish Courts have jurisdiction on granting provisional and protective measures before the arbitral tribunal has been constituted. Alternatively, the Turkish Courts may be asked for assistance in enforcing or obtaining provisional and protective measures ordered by the arbitral tribunal, if a party does not comply voluntarily with such measures. The Turkish Courts have assisted in taking evidence requested by the arbitrators in order to support the arbitration.
The Turkish Courts also assist the arbitration if an obstacle occurs. The Turkish courts can be called upon to appoint an arbitrator if a party fails to appoint its arbitrator or if the two party appointed arbitrators fail to agree on the third. The courts may be asked to decide on the matter of whether an application for challenge should be made (unless the parties have already agreed on an arbitral institution to do so) to relieve the parties or the arbitrators of a stalemate they may be facing whilst making this decision. Similarly, if the award cannot be made within the necessary time, the Turkish Courts may be asked to grant a time extension. The Turkish Courts assistance also continues after the award is made. The court can assist the arbitration proceeding by depositing the award requested, or by serving the award on the parties if the parties request them to do so.
- Making the Award and Arbitration Termination
The parties’ agreement to accept an award only if rendered unanimously may be made after the arbitration has started and may also be set aside at any point by the parties’ mutual agreement. In practice, a unanimous decision is not usually required. In fact, Article 7A of TIAC specifically requires that the number of arbitrators is to be odd to enable the arbitral tribunal to make a majority award in case no unanimous opinion can be found on the dispute. In Turkish law, there is no rule that allows any special weight to the chairman’s opinion. Where no majority can be found, the chairman’s opinion does not have a deciding effect in constituting the award. On the contrary, if there is no majority award, the arbitration is terminated. The rules of Article 14 of TIAC provide the standard form that the content of the award must take. Accordingly, the award shall state: 1. Names and surnames, tiles and, if any, the representatives and counsels of the parties; 2. Reasons upon which the decision has been based, and in the case of a claim for damages, the amount awarded; 3. The date of the award and the place of arbitration; 4. The names, surnames and signatures of the sole arbitrator or members of the arbitral tribunal that made the award and the dissenting opinion, if any and, 5. A statement reminding the reader that it is possible to make an application for setting aside the award.
In the award of the sole arbitrator or arbitral tribunal, the cost of arbitration will be stated. Arbitration costs include:
- The fee of the arbitrators.
- The travel cost and other expenses of the arbitrators.
- The fees of the expert or other person who was appointed by the sole arbitrator or the arbitral tribunal to request his or her assistance and site visit expenses.
- The travel and other expenses of the witnesses to the extent approved by the sole arbitrator or arbitral tribunal.
- The fee of the attorney of the winning party which shall be determined by the sole arbitrator or arbitral tribunal in accordance with the minimum attorney’s fee tariff.
- Court fees that are to be paid for the applications under this Code.
- The expenses of notification related to the arbitral proceedings.
The arbitrators do not have jurisdiction to decide on the disputes that are not arbitrable. Nevertheless, if the arbitral award concerns a dispute that is not arbitrable, such an award can be set aside. Non-arbitrability constitutes grounds for setting aside an award and is to be considered ex officio. This is one of the two exceptions (together with violation of public policy) over which the Defendant does not have the burden of proof. If the court finds that the subject-matter of the dispute is not arbitrable the award can be set aside according to TIAC Article 15 (2) (a). When an award is set aside because the dispute was not arbitrable, no new Tribunal can be constituted and the dispute has to be resolved by the competent courts.
Under Turkish law, only disputes that are subject to the parties’ will are arbitrable. Thus, commercial matters are arbitrable under Turkish law. Family law disputes, administrative law disputes or criminal issues cannot be referred to arbitration. The Turkish Supreme Court held that bankruptcy disputes are also not arbitrable. On the other hand, intellectual property rights are arbitrable. Parties can have an arbitration agreement for disputes concerning intellectual property rights. Such an arbitration clause establishes the arbitrators’ jurisdiction on IP disputes between the parties to the arbitration agreement. However, the arbitrators’ decision will have a binding effect only on the parties to the arbitration agreement. The infringement of an IP right by a third party, for instance, cannot be referred to arbitration.
Violation of public policy constitutes grounds for setting aside an award and is to be considered ex officio. However, in practice, public policy is not commonly used as grounds for setting aside an award. A violation of every mandatory rule does necessarily mean violation of public policy. Like many other jurisdictions, the concept of public policy is not defined by TIAC, which does not contain a list that might indicate the circumstances to be considered as violations of public policy. The concept of public policy also changes over time. In any case, the concept of public policy is interpreted more narrowly in international arbitration than in domestic arbitration. No arbitration award governed by TIAC has as yet been set aside due to a violation of public policy. Before TIAC came into force, some awards were set aside because of violation of public policy issues. For instance, the impartiality of the arbitrator is a fundamental issue and violation of this principle may violate Turkish public policy.
4.3 South Korea
- Arbitration Act of Korea
The Arbitration Act, which was the first systematic arbitration legislation to be enacted in Korea, was approved by the National Assembly of Korea on 31 December 1965 and entered into force on 16 March 1966. In contrast to the arbitration laws of other civil jurisdictions including Germany, the Arbitration Act was promulgated as a separate statute instead of being incorporated into the civil procedure code. The provisions of the Arbitration Act (1966) were modeled after the arbitration provisions found in the tenth book of the German Code of Civil Procedure 1877. Features of this statute are as follows:
(1) The Act’s stated purpose was to facilitate the prompt resolution of disputes under private law, not by the judgment of courts, but by awards made by arbitrators in accordance with the parties’ agreement.
(2) The scope of arbitrability under the Act was restricted to legal relationships under private law that were capable of disposition by the parties, whether or not the legal relationship at issue was a commercial relationship.
(3) “Arbitration Agreement” was defined to include an arbitration agreement stamped and sealed by both parties, an arbitration clause in a contract, and an arbitration clause set forth in an exchange of letters or telegrams.
(4) In relation to a matter covered by an arbitration agreement, the filing of a civil suit on the merits was permitted only where the arbitration agreement was null and void, inoperative, or incapable of performance.
(5) The parties were free to agree on the number and method of appointment of arbitrators; in the absence of agreement, each party was to appoint one arbitrator.
(6) In case of an arbitration agreement concerning a legal relationship pertaining to a commercial transaction (i.e. a “commercial arbitration”), questions concerning the appointment of arbitrators were to be resolved in accordance with the rules of an incorporated association designated by the Minister of Trade, Industry and Energy.
(7) In a case before a panel composed of multiple arbitrators, the arbitration agreement was to be deemed inoperative in the event of a deadlock between or among arbitrators.