The expansion of economic globalization and the growing number of transnational transactions in the last few decades have – inevitably – resulted in an increased number of cross-border disputes. As a result, the relationship between international trade and arbitration has become a hot topic in Turkey and has revealed the necessity of establishing a state independent international arbitration centre to supervise arbitration proceedings. An arbitration centre is especially important for foreign companies with projects or subsidiaries in Turkey.
Law No. 6570 on the Istanbul Arbitration Centre (“LIAC“; passed on November 20, 2014), entered into force on January 1, 2015 and established the Istanbul Arbitration Centre (“ISTAC“). LIAC lays out the rules for the creation of ISTAC and defines the centre’s organisational structure and activities. ISTAC comprises both a domestic and an international court of arbitration, as well as a 25-member general assembly, board of directors, advisory board, secretary general and auditors.
According to Article 6 of the LIAC, four members of the general assembly must be lawyers elected by the presidents of Turkey’s 78 bar associations. In response to this Article 123 members of parliament applied to the Constitutional Court requesting the annulment and suspension of certain portions of Article 6 on the grounds that such general assembly members may not be independent and impartial as elected officials tend to be partisan. The applicants argued that these provisions would be contrary to the public interest and the rule of law.
The Constitutional Court unanimously overruled the annulment request. Article 6 of the LIAC is not contrary to the public interest and does not violate the rule of law.
A law can be annulled on the ground that it is not in the public interest only if it serves another purpose than the public interest. However, according to the Court, the legislator has certain discretion to decide on the scope of the public interest. A court cannot decide on the propriety of such interests, but can only intervene if the related legislative documents and objectives prove that the legislation is made to protect the interests of an individual rather than society as a whole.
In the case at hand, the Court held that the legislator had discretion as to the Centre’s organizational structure. Moreover, the Court did not agree with the applicants that Article 6 of the LIAC served the interests of an individual. “The Report of the Justice Commission of the Turkish Grand National Assembly” makes it clear that the purpose of Article 6 is to ensure pluralism in ISTAC’s structure. The Court also noted that bar presidents are themselves elected to office and are representatives of the members of Turkey’s 78 bar associations. To sum up, the Constitutional Court gave arbitration and, more specifically, ISTAC the kiss of life it needed. Unless a fundamental right protected by the Constitution is violated, the Constitutional Court will not intervene with the workings of institutions created by the legislature for the resolution of disputes out of court. It is hoped that this decision will give the Centre the psychological boost needed to compete with centres that have been in operation for a long period of time and which are dominant, at least regionally.
International arbitration has a significant advantage – compared to the courts – for all parties in terms of impartiality, independence and cultural and procedural neutrality on the part of the arbitrators. Since these principles are of such importance, also the arbitral institutions in general and ISTAC in particular need to ensure that their organization guarantees impartiality and independence. ISTAC’s success and its development will depend on it. Political plurality in the structure of the general assembly can make an important contribution.
On a separate note, the draft ISTAC Rules of Arbitration are in circulation for comments amongst members of the board of advisors and arbitration practitioners. It is anticipated that the final rules will be announced within a couple of weeks and that ISTAC will officially commence its duties before the end of the year.