A step-by-step practical guide to arbitration proceedings before the Istanbul Arbitration Centre (ISTAC), covering the arbitration clause, constitution of the tribunal, terms of reference, emergency arbitrator, fast track arbitration, the final award, the setting-aside action and enforcement.
<p>The Istanbul Arbitration Centre (ISTAC) is an independent, neutral and autonomous institution providing arbitration and mediation services for the resolution of disputes between commercial actors in Türkiye and abroad. The ISTAC Arbitration Rules entered into force on 26 October 2015 and introduced a regime based on modern institutional arbitration rules, incorporating contemporary mechanisms such as fast track arbitration, the emergency arbitrator and interim relief. ISTAC arbitral awards are final and binding and, by virtue of the New York Convention, are enforceable in a great many countries around the world. This article examines ISTAC arbitration proceedings step by step and from a practitioner's perspective, from the drafting of the arbitration clause through to the enforcement of the final award and the setting-aside action.</p>
<p><b>1. The Istanbul Arbitration Centre: Establishment, Purpose and Institutional Structure</b></p>
<p>ISTAC is an autonomous arbitration institution, established by Law No. 6570 and independent of both the public and private sectors. It provides services to both domestic and foreign parties without requiring any membership. Its institutional structure comprises the Board of Directors, the General Assembly, the Advisory Board, the National and International Courts of Arbitration and the Secretariat. Within this structure the two most critical organs are the Courts and the Secretariat. The Courts render the managerial decisions of the proceedings, such as the appointment of arbitrators, the determination of challenges against arbitrators, the extension of the arbitration period and the fixing of costs. The International Court of Arbitration is composed of internationally renowned jurists, the majority of whom are foreign. The Secretariat, for its part, conducts the administrative operation of the proceedings; the receipt of applications, the service of notifications, the monitoring of time limits and file management fall within its remit. This dual structure ensures that the arbitration is conducted both expeditiously and under institutional supervision.</p>
<p><b>2. The Difference Between Institutional and Ad Hoc Arbitration and the Advantages of Choosing ISTAC</b></p>
<p>Arbitration may be conducted in two basic forms: institutional arbitration and ad hoc arbitration. In ad hoc arbitration the parties conduct the proceedings without the rules and administrative support of an institution, within a procedural framework they determine themselves. In institutional arbitration, by contrast, a centre such as ISTAC provides a pre-prepared set of rules, an arbitrator appointment mechanism, time management and administrative support. The principal advantages of choosing ISTAC are as follows: predetermined and foreseeable procedural rules; the appointment of arbitrators by the Court where the parties cannot agree, so that the process is not obstructed; the administrative support and monitoring of time limits provided by the Secretariat; costs being fixed in advance according to a scale; special mechanisms such as fast track arbitration and the emergency arbitrator; and awards being more robust at the setting-aside and enforcement stages by virtue of having passed institutional scrutiny. Moreover, the fact that ISTAC proceedings are based in Istanbul provides advantages of language, distance and cost for Turkish parties.</p>
<p><b>3. Drafting the Arbitration Clause and Its Critical Elements</b></p>
<p>The foundation of arbitration proceedings is the parties' valid intention to submit the dispute to arbitration. This intention is most often expressed through an arbitration clause inserted into the contract. ISTAC recommends a model arbitration clause for the parties to use; adopting this model clause minimises the risk of invalidity. The critical elements to be observed in drafting an effective arbitration clause are as follows: a clear statement that disputes shall be finally resolved in accordance with the ISTAC Arbitration Rules; agreement on the number of arbitrators (a sole arbitrator or three arbitrators); determination of the seat of arbitration; selection of the language of the proceedings; and designation of the law applicable to the substance of the dispute. Clarifying these elements at the outset significantly reduces procedural disputes at the proceedings stage. Uncertainties concerning, in particular, the choice of law and the seat of arbitration may lead to loss of time and additional cost at the beginning of the process. Where there is a departure from the model clause text, obtaining expert advice is recommended in order to avoid pathological arbitration clauses.</p>
<p><b>4. Commencement of the Proceedings: The Request for Arbitration, the Answer and the Counterclaim</b></p>
<p>ISTAC arbitration commences with the claimant submitting a Request for Arbitration to the Secretariat. The Secretariat notifies the parties of the receipt of the request and of the date of receipt; this date is significant for the commencement of the proceedings. The Request for Arbitration contains the parties' details, a summary of the dispute, the relief sought, explanations regarding the arbitration clause, views on the number and appointment of arbitrators and requests concerning the seat and language of arbitration. The respondent submits its answer within thirty days of notification of the Request for Arbitration. Within this period the respondent must also make submissions on matters such as the constitution of the tribunal; although the Secretariat may grant an extension, submissions concerning the appointment of arbitrators must in principle be made within the thirty-day period. The respondent may raise a counterclaim together with its answer. At the commencement of the proceedings, the registration fee and administrative expenses together with the advance on the arbitrators' fees must be paid in accordance with the Scale of Costs and Fees. Failure to pay the costs prevents the proceedings from progressing.</p>
<p><b>5. The Number and Appointment of Arbitrators and the Principle of Independence and Impartiality</b></p>
<p>The number of arbitrators is determined by the parties; where it has not been agreed, the Court decides, according to the nature of the dispute, whether a sole arbitrator or three arbitrators are to be appointed. In proceedings with a sole arbitrator, if the parties cannot agree on the identity of the sole arbitrator within thirty days of notification of the Request for Arbitration, the arbitrator is appointed by the Court. In proceedings with three arbitrators, each party appoints one arbitrator; where a party does not appoint its arbitrator, that arbitrator is appointed by the Court. The two arbitrators so appointed determine the third arbitrator (the president of the tribunal) within fifteen days of notification of their appointment; if they cannot do so, the third arbitrator is appointed by the Court. Arbitrators must remain independent and impartial throughout the proceedings. A person proposed as an arbitrator is under a duty to disclose any matter that may give rise to doubts as to their independence and impartiality. Where there are circumstances giving rise to justifiable doubts as to independence or impartiality, the parties may challenge the arbitrator; the Court decides on the challenge and the Court's decision on the challenge is final.</p>
<p><b>6. The Terms of Reference and the Procedural Timetable</b></p>
<p>Once the arbitrator or arbitral tribunal has been constituted and the file has been transmitted to them, two fundamental documents defining the framework of the proceedings are drawn up: the terms of reference and the procedural timetable. The terms of reference contain the parties' details, a summary of their claims and requests, the issues in dispute to be resolved, the seat of arbitration and the applicable procedural rules. The terms of reference cannot be interpreted as constituting a new arbitration agreement; their function is to define the boundaries of the dispute. If one of the parties refuses to sign the terms of reference, the document is submitted to the Court for approval, and the proceedings continue upon the Court's approval. The procedural timetable, for its part, sets out the dates for the submission of pleadings, the periods for the notification of evidence, the hearing date if any and the schedule of other procedural steps. It is essential that the arbitrator(s) render a decision on the substance of the dispute within six months of the approval of the terms of reference. This period may be extended by agreement of the parties, upon the request of the arbitrator(s), or by the Court of its own motion. It should be emphasised that no terms of reference are drawn up in fast track arbitration; this is one of the sources of the speed advantage of fast track arbitration.</p>
<p><b>7. The Emergency Arbitrator</b></p>
<p>In certain cases, before the arbitrator or arbitral tribunal has yet been constituted, urgent protection may be required which cannot await that constitution. The ISTAC Emergency Arbitrator Rules respond precisely to this need. The emergency arbitrator is appointed upon applications made to the Secretariat for urgent interim measures of protection before the file is transmitted to the sole arbitrator or arbitral tribunal. It is not necessary for a request for arbitration to have been made beforehand in order to apply to this mechanism; however, applications made after the file has been transmitted to the arbitrator or tribunal are not assessed within the scope of the emergency arbitrator but are directed straight to the arbitrator or tribunal. The Emergency Arbitrator Rules contain strict time limits providing for the arbitrator to be appointed within a short period upon the application and for the decision to be rendered swiftly. The decision rendered by the emergency arbitrator binds the parties; however, the arbitrator or tribunal subsequently constituted may review, modify or set aside that decision. This mechanism is an effective instrument of protection preventing loss of rights while the constitution of the arbitral tribunal is awaited.</p>
<p><b>8. Fast Track Arbitration: The TRY 5,000,000 Threshold and the Expedited Procedure</b></p>
<p>One of the most frequently preferred mechanisms of ISTAC is fast track arbitration. The Fast Track Arbitration Rules apply to disputes in which the value of the claim does not exceed TRY 5,000,000. This threshold, raised by the update to the scale, has significantly broadened the scope of application of fast track arbitration. In fast track arbitration the dispute is, as a rule, resolved by a sole arbitrator, and a final award is rendered within three months at the latest following the transmission of the file to the arbitrator. The principal features rendering fast track arbitration swift are as follows: no terms of reference being drawn up; the periods for the submission of pleadings and evidence being shortened; the examination being conducted as a rule on the basis of the file, with hearings being exceptional; and the proceedings being conducted by a sole arbitrator. Even where the threshold is not exceeded, the Court may decide that the fast track arbitration rules shall not apply where the nature of the dispute so requires. Drafting the arbitration clause with the scope and threshold of the fast track mechanism in mind, at the contract stage, enables the parties to benefit from the advantages of speed and cost in the future.</p>
<p><b>9. Interim Relief and Provisional Measures</b></p>
<p>In arbitration proceedings, as in state litigation, there may be a need to protect rights until the substance of the dispute is decided. Under the ISTAC Arbitration Rules, unless otherwise agreed by the parties, the sole arbitrator or arbitral tribunal may, upon the request of one of the parties, order such interim measure of protection as it deems appropriate. The arbitrator or tribunal may make such a measure subject to appropriate security. An important point is that the existence of arbitration proceedings does not prevent the parties from seeking interim relief from a state court; recourse to a court is possible in particular before the arbitral tribunal has been constituted, or where enforcement of the measure requires the power of the state. As regards urgent situations arising before the constitution of the tribunal, the emergency arbitrator mechanism comes into play. In practice, directing the request for interim relief to the correct forum (the emergency arbitrator, the arbitral tribunal or the state court) is decisive in terms of speed and effectiveness.</p>
<p><b>10. The Conduct of the Proceedings: Pleadings, Evidence and Hearings</b></p>
<p>Following the establishment of the terms of reference and the procedural timetable, the proceedings move to the phase concerning the substance. The parties submit their pleadings, claims and defences, together with the evidence on which they rely, within the periods set out in the procedural timetable. Evidence may be adduced through documentary evidence, witness statements, expert reports and, where necessary, inspection. After obtaining the views of the parties, the sole arbitrator or arbitral tribunal may decide to hear witnesses and experts, to conduct an inspection and to hold a hearing. The parties may put questions directly to experts. Equality of the parties and the right to be heard are essential in the proceedings; affording each party an equal opportunity to present its claims and defences is critical both for the fairness of the proceedings and for the avoidance of the risk of subsequent setting-aside. Hearings are, as a rule, held at the seat of arbitration; however, unless otherwise agreed by the parties, the arbitrator or tribunal may, after obtaining the views of the parties, conduct hearings and meetings outside the seat of arbitration as well. In modern practice, online hearings have also become widespread.</p>
<p><b>11. The Law Applicable to the Substance and to the Procedure</b></p>
<p>Two distinct layers of law are in play in arbitration proceedings: the rules applicable to the procedure of the proceedings and the substantive law applicable to the substance of the dispute. As regards procedure, the ISTAC Arbitration Rules govern; where the Rules are silent, the arbitrator or tribunal determines the appropriate procedure, having regard to the equality of the parties and the right to be heard. As regards the law applicable to the substance, the principle is the autonomy of the parties' will; the parties may freely choose the law applicable to the substance of the dispute. Where the parties have not made a choice of law, the arbitrator or tribunal applies the law it considers most closely connected with the dispute. Where the parties have expressly so authorised, the arbitrator or tribunal may also decide according to the principles of equity and good conscience. In disputes of an international character, the correct determination of the law applicable to the substance and of the seat of arbitration is of great importance both for the foreseeability of the proceedings and for the subsequent enforcement of the award.</p>
<p><b>12. The Final Award: Form, Time Limit and Correction</b></p>
<p>Following the completion of the examination, the arbitrator or tribunal renders its final award on the substance of the dispute. In an arbitral tribunal the award is made by majority; where a majority cannot be achieved, the view of the president of the tribunal may prevail. The award contains the parties' details, a summary of the dispute, the operative part and the reasoning. The award is made in writing and signed by the arbitrator(s). The award is deposited with the Secretariat; on condition that all the arbitration costs have been paid, the Secretariat notifies the award to the parties. The arbitral award is binding on the parties and is, as a rule, final. Computational, clerical and similar material errors in the award may be corrected by the arbitrator(s) of their own motion within thirty days. Within the same period the parties may also request the interpretation of the award, the correction of clerical and computational errors, or the completion of claims not dealt with in the award. The allocation of the arbitration costs between the parties is also determined in the award; as a rule the costs are borne by the unsuccessful party, but the arbitrator or tribunal may provide for a different allocation according to the circumstances of the case.</p>
<p><b>13. Setting Aside the Arbitral Award: The Distinction Between the HMK and the MTK</b></p>
<p>Ordinary legal remedies such as appeal or cassation are closed against arbitral awards; the only available remedy is the setting-aside action. A dual regime exists in Turkish law as regards the setting-aside action. In disputes without a foreign element, that is, wholly domestic disputes, Article 439 of the Code of Civil Procedure No. 6100 applies. Where the dispute contains a foreign element in terms of its parties, subject matter or place of performance and the seat of arbitration has been determined as Türkiye, Article 15 of the International Arbitration Law No. 4686 applies. The fundamental principles are similar in both regimes: the setting-aside action may be brought only before the regional court of appeal of the seat of arbitration; the action must be brought within one month of notification of the arbitral award to the parties, and this period is a time bar; and the proceedings are conducted with priority and expedition, as a rule on the basis of the file. The grounds for setting aside are enumerated exhaustively in the law and principally comprise: the incapacity of one of the parties to the arbitration agreement or the invalidity of the agreement; non-compliance with the procedure in the appointment of the arbitrators; the award not having been rendered within the arbitration period; the arbitrator having exceeded its authority; non-compliance with the procedure of the proceedings; failure to observe the equality of the parties; the dispute not being capable of settlement by arbitration; and the award being contrary to public policy. The critical point is that the court cannot review the merits of the award in the setting-aside action; whether the arbitrators applied the law correctly or assessed the evidence correctly is not the subject of the setting-aside action. The public policy exception is construed narrowly. An appeal on points of law, limited to the grounds for setting aside, lies against the decision rendered in the setting-aside action.</p>
<p><b>14. Recognition and Enforcement of the Arbitral Award</b></p>
<p>The rendering of an arbitral award does not, in most cases, mean the practical end of the dispute; the award must be capable of enforcement. Where an ISTAC award rendered in Türkiye is not voluntarily performed by the debtor, the award is made the subject of execution proceedings; upon the expiry of the period prescribed for the setting-aside action, or the waiver of the setting-aside action, the award becomes final and acquires executory force. Where the award needs to be enforced in a foreign country, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards comes into play. By virtue of this Convention, ISTAC awards may be enforced in the many countries that are parties to the Convention. Conversely, the enforcement in Türkiye of an award of a foreign arbitral institution likewise takes place within the framework of the same Convention and of Law No. 5718. One of the strongest advantages of arbitration over state litigation is that awards are, by virtue of this Convention, enforceable across borders.</p>
<p><b>15. Conclusion and Practical Recommendations</b></p>
<p>ISTAC arbitration offers a powerful alternative for the swift, expert and enforceable resolution of commercial disputes. The success of the process depends largely on the correct choices made at the outset. The prominent practical considerations in this field are as follows: drafting the arbitration clause on the basis of the ISTAC model clause, expressly stating the number of arbitrators, the seat of arbitration, the language and the applicable law; where the value of the dispute is low, having regard to the threshold and advantages of fast track arbitration; being aware of the emergency arbitrator mechanism as regards the need for urgent protection; taking care as to independence and impartiality in the appointment of arbitrators; complying meticulously with the procedural timetable and the time limits; averting the risk of subsequent setting-aside by preserving the equality of the parties and the right to be heard throughout the proceedings; and managing the process with the country of enforcement of the award in mind. Sound arbitration planning at the contract stage will provide a significant advantage in terms of both time and cost when a dispute arises.</p>
<p>For advisory services on Istanbul Arbitration Centre (ISTAC) arbitration, the drafting of arbitration clauses, the conduct of arbitration proceedings, fast track arbitration and emergency arbitrator applications, the setting aside of arbitral awards and the recognition and enforcement of foreign arbitral awards, you may contact us at <b>info@guzeloglu.legal</b>.</p>