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The Recognition And Enforcement Of Foreign Arbitral Awards In Turkey Series No.2 – Arbitration & Dispute Resolution



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The Role of Setting-Aside or Annulment Procedures as per
Article V (1) e and Article VI of New York Convention

The New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards of 10th June 1958 (NYC) has a wide scope of
application in Turkey. Being a part of the NYC since 30th September
1992, a considerable amount of Turkish case-law has emerged on the
implementation of NYC.

As it is widely known, the refusal grounds of a request for the
recognition or enforcement of a foreign arbitral award are
regulated under article V of NYC. According to article V(1) e, if
the [arbitral] award has not yet
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
”, then the court where the
recognition and enforcement is sought may refuse the request.
However, the party against whom the arbitral award is invoked shall
furnish to the competent court the relevant proof to prevent the
recognition or enforcement.

However, it is worth mentioning that if the (sole) arbitrator or
arbitral tribunal has rendered its final award, this award will be
binding on the parties in accordance with the procedural law
applied to the arbitration (lex arbitri) and no other
legal procedure is necessary for making the award binding on the
parties. Thus, if one of the parties has initiated a set-aside or
annulment procedure before the competent authority, this will not
be sufficient to deprive the arbitral award of its binding effect.
For being able to consider that the award is no longer binding on
the parties and refuse the recognition or enforcement, the award
has to be set aside or suspended by the competent authority of the
country in which, or under the law of which, that award was
made.

In parallel with this approach, article VI of NYC clearly
stated that the court where the recognition and
enforcement is sought may also order the recognition or
enforcement, even if a request for setting aside or suspension has
been made. According to article VI, “If an application
for the setting aside or suspension of the award has been made to a
competent authority referred to in article V (1) (e), the authority
before which the award is sought to be relied upon may, if it
considers it proper, adjourn the decision on the enforcement of the
award and may also, on the application of the party claiming
enforcement of the award, order the other party to give suitable
security
.”

During a considerable period, Turkish courts were hesitant to
rule on the enforcement of foreign arbitral awards, which are
subject to setting aside proceedings before the competent authority
(mostly, the court of the country in which the arbitral award is
made). However, this approach began to be evolved into a more
arbitration-friendly one.

In a case heard by Istanbul Appeal Court (14th Civil District),
the defendant alleged that they applied to the International
Chamber of Commerce Arbitration Court for the correction and
interpretation of the arbitral award, which is subject to the
request of enforcement and that the proceedings were still pending,
consequently the application before ICC shall be considered by the
court as a preliminary issue (BAM. 14. HD, 11.10.2018, E. 2018/130,
K. 2018/1042). The Appeal Court argued that according to article VI
of NYC the competent court where the enforcement is sought has
discretion if a setting aside application has been made before the
competent authority of the country in which the arbitral award was
made. The Court of Appeal continued by underlining that even an
application to set aside does not have any definitive effect on the
process of enforcement of the arbitral award; thus, the application
regarding the correction and interpretation of the arbitral award
before ICC Arbitration Court cannot be considered as a preliminary
issue which will cause a delay of the enforcement.

Pursuant to article VI of NYC, if an application for setting
aside and enforcement of an arbitral award has concurrently been
initiated, the court before which the enforcement is sought has a
discretionary power both to order the enforcement with appropriate
security or stay the proceedings till the end of the setting aside
procedure. The court has also discretion on the amount of the
security and period of stay of enforcement proceeding. If the court
has ruled on providing appropriate security for the stay of an
enforcement proceeding and the party fails to provide this
security, this may result in the enforcement of the arbitral
award.

However, we have to emphasize that in practice the competent
court before which the enforcement is sought mostly refuse to rule
on a stay of proceedings in case of a consecutive application for
setting aside. Particularly, in cases where the setting aside
application was made only for delaying the enforcement of the
arbitral award or is based on grounds that are not well accepted in
international commercial arbitration practice, the court should not
rule on stay of proceedings with or without security.

Moreover, it is worth noting that article V(1) (e) of NYC
mentions that the court where the recognition and enforcement is
sought may refuse the request where the arbitral award is subject
to an application for setting aside. Thus, the competent court may
even not refuse the enforcement request in the case where there is
an application for setting aside before the competent authority.
However, where the arbitral award is subject to a setting aside or
annulment application based on substantial and cogent legal
grounds, the enforcement would be risky and may harm the interest
of the party who applied for the setting aside.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Litigation, Mediation & Arbitration from Turkey

Case Law Updates – July 2022

Barton Legal

The parties engaged in an adjudication, in which the adjudicator found the Claimant was owed around £2,204,217.13 (on 17 January 2022).



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