This week, we will continue the arbitration types series with optional arbitration. Optional arbitration is an alternative dispute resolution method in which the parties decide to resolve their disputes through one or more arbitrators before applying to the court. The word “optional” means that applying to this type of arbitration is not mandatory; in other words, the parties choose arbitration instead of going to court to resolve their disputes.
In optional arbitration, the parties can freely regulate important elements such as the arbitration terms and how the arbitrators will be determined. This allows arbitration to offer a more flexible and faster solution path for the parties.
In Turkish Law, optional arbitration is regulated between Articles 410-420 of the Code of Civil Procedure No. 6100. According to the HMK, in the event of a dispute between the parties, instead of going to court, it is possible to accept that the disputes be resolved through arbitration. Turkey has also become a party to the New York Convention (1958), which has ensured that international arbitration decisions are recognized and enforced in Turkey.
If we express the Voluntary Arbitration Institutions in Turkey; Istanbul Arbitration Center (ISTAC): It is the most important domestic arbitration center in Turkey and plays an active role in the resolution of commercial and international disputes. Ministry of Justice of the Republic of Turkey: The Ministry ensures the supervision and regulation of voluntary arbitration processes. In addition, for international institutions, global arbitration institutions such as the ICC (International Chamber of Commerce) and the LCIA (London Court of International Arbitration) can also be used in voluntary arbitration cases in Turkey.
Voluntary arbitration is a widely used alternative dispute resolution method around the world. The practices of voluntary arbitration in different countries may vary depending on legal systems, cultural characteristics and economic requirements. However, in general, the global practices of voluntary arbitration are based on similar principles: the parties agree to resolve their disputes through independent and impartial arbitrators instead of resorting to court, etc.
Here are some important areas of application of voluntary arbitration worldwide:
1) United States of America (USA)
- In the US, voluntary arbitration is widely used in commercial contracts, especially in the fields of trade, construction, labor relations and insurance.
- The Federal Arbitration Act, passed in 1925, forms the legal basis of voluntary arbitration. According to this law, parties can resolve disputes without going to court by adding an arbitration clause to the contract.
- In addition, arbitration decisions are generally recognized and enforced by the courts in the US.
2) European Union (EU)
- In European Union countries, voluntary arbitration is a common solution, especially in commercial disputes. There are many international agreements and regulations regarding arbitration among EU countries.
- Leading arbitration boards such as ICC (International Chamber of Commerce) Arbitration Institution and LCIA (London Court of International Arbitration) operate very effectively in Europe.
- Arbitration awards are generally recognized and enforced among EU countries, but in some countries, courts may declare arbitration awards invalid, especially in consumer rights and labor rights.
3) United Kingdom (England)
- In the United Kingdom, voluntary arbitration is widely used, especially in the commercial and financial sectors. London is known as an important arbitration center worldwide.
- The most important regulation regarding arbitration in England is the Arbitration Act 1996. This law regulates the arbitration process and arbitration agreements in detail.
- Arbitration institutions such as the LCIA (London Court of International Arbitration) in London are the main institutions that increase the effectiveness of voluntary arbitration worldwide.
4) India
- In India, voluntary arbitration is used especially in the commercial and construction sectors. The Arbitration and Conciliation Act, passed in 1996, provides the legal basis for arbitration and regulates the arbitration process.
- India has an increasing importance in international arbitration and New Delhi has become an important center for international arbitration.
5) China
- In China, voluntary arbitration is used especially to resolve commercial disputes between foreign investors and Chinese companies. The most important arbitration center in China is the China Chamber of International Commerce and Economy Arbitration Committee (CIETAC).
- China is a party to the New York Convention of 1958, ensuring the international validity of arbitration awards.
6) Latin America
- In Latin American countries, voluntary arbitration is widely used for commercial disputes. Countries such as Argentina, Brazil, Mexico and Colombia have adopted arbitration as a solution.
- International arbitration institutions such as Camara de Comercio Internacional (CCI) are important arbitration centers in Latin America.
7) Middle East
- In the Middle East, especially in the United Arab Emirates (UAE), Qatar and Saudi Arabia, voluntary arbitration is generally used in the trade, construction and energy sectors.
- Dubai, UAE, is an important center for arbitration with institutions such as the Dubai International Arbitration Center (DIAC).
- Saudi Arabia has also begun to give more importance to arbitration with the Arbitration Law that came into force in 2012.
8) Africa
- In Africa, voluntary arbitration is used especially in the trade and construction sectors.
- Arbitration practices have developed in countries such as Mauritius, supported by Africa’s leading arbitration center, the African Arbitration Association (AfAA).
The general application process of voluntary arbitration proceeds as follows.
1) Arbitration Agreement (Arbitration Agreement); The first step in applying for voluntary arbitration is for the parties to conclude an arbitration agreement. This agreement is a contract in which the parties agree to resort to arbitration instead of going to court in the event of any dispute.
The arbitration agreement is usually included as an annex to the contract (arbitration clause) and the parties agree to resolve the dispute through arbitration. An arbitration clause can be added to an existing contract between the parties, or the two parties can make an arbitration agreement from the beginning for a dispute between them.
2) Determination of the Arbitration Institution (or Appointment of an Arbitrator); If the parties have designated an arbitration institution (such as ICC, LCIA, CIETAC), the rules and procedures of that institution will apply. If there is no specific arbitration institution, the parties can determine the appointment of arbitrators. Usually, each party selects one arbitrator, and in the event of a disagreement between two arbitrators, a third arbitrator can be appointed (usually as the presiding arbitrator). The parties take into consideration the qualifications, experience and independence of the arbitrators.
3) Application for Arbitration (Request); When a party applies for arbitration in the event of a dispute, it forwards the request for arbitration to the relevant arbitration institution or arbitration board. This application is made with an arbitration petition and includes the party’s claims and demands regarding the dispute. The request includes details such as which disputes the parties want to resolve, which rules will be followed, who the arbitrators are, etc.
4) Arbitration Process (Dispute Resolution)
- Preparation phase: The parties determine the schedule and procedures of the process together with the arbitration institution or arbitration board. The parties present their evidence, notify the witnesses and explain their demands.
- Hearing/Taking Statements: In arbitration, the parties can usually hold oral hearings. In these hearings, both parties present their defenses and the arbitrators evaluate the evidence. However, sometimes decisions can be made only with written applications in arbitration.
- Presentation of Evidence: The parties present their evidence and the arbitrators will evaluate this evidence and decide on the resolution of the dispute.
- Review of the Subject of the Dispute: The arbitrators review the evidence and arguments presented by the parties. In voluntary arbitration, there is a more flexible process than in courts, so arbitrators can make a quicker and more direct assessment.
5) Making the Arbitration Award; Arbitrators make their decisions regarding the dispute, and this decision is usually known as an arbitration award. This decision is notified to the parties. An arbitration award is binding, similar to a court decision. In other words, the parties must comply with the arbitration award. However, in some special cases, the arbitration award can be appealed (for example, malpractices, violation of the right to a fair trial, etc.).
6) Implementation and Supervision of the Arbitration Award; Compliance with domestic law: If the parties do not comply with the arbitration award, they can apply for the court to recognize and enforce the award. In international arbitration, arbitration awards are recognized and enforced among countries that are party to the New York Convention.
7) Enforcement and prosecution: Parties can apply to local courts to request the enforcement of the arbitration award. Courts generally recognize and enforce arbitration awards.
8) Post-Arbitration Objection and Review (Limited); Objection: Most of the time, objections to arbitration decisions are limited. However, in some cases, parties may request a review of the decision due to erroneous practices or legal errors. These objections are limited to only certain special cases (for example, violation of the impartiality of the arbitrators, violation of the right to a fair trial, etc.). However, objections to arbitration decisions are usually limited by the courts.
Advantages of Voluntary Arbitration:
- Fast Resolution: Arbitration is generally faster than courts because the parties and arbitrators can determine a more flexible schedule.
- Confidentiality: The arbitration process is usually confidential, which ensures that trade secrets are protected for the parties.
- Expert Arbitrators: In a dispute that requires expertise, the parties can choose arbitrators who are experts in the subject matter.
- International Validity: Arbitration decisions are generally recognized and enforced internationally.
As a result, voluntary arbitration is gaining more acceptance worldwide and is becoming one of the solutions for both local and international trade.
Voluntary arbitration is an alternative dispute resolution method in which the parties agree to find a solution through independent and impartial arbitrators instead of going to court in the event of a dispute. The application of voluntary arbitration proceeds in certain steps and each stage is based on the rules and processes that the parties have determined in advance.
Voluntary arbitration offers the parties a faster, more confidential and more flexible solution, but it may not be suitable for every dispute. In practice, the parties resort to voluntary arbitration to benefit from the advantages of this process.
Voluntary arbitration in Turkey is regulated by the Code of Civil Procedure (HMK) No. 6100 and is widely used especially in areas such as commercial disputes, the construction sector, business life and international trade. Voluntary arbitration practices in Turkey have been developed to be in line with international standards.
Sources:
https://ncmb.gov.ph/services/voluntary-arbitration-program/
https://www.lsd.law/define/voluntary-arbitration
https://www.consumeradvocates.org/for-consumers/arbitration/
https://blog.lexpera.com.tr/hmk-usulunde-tahkim-yargilamasi/
https://journals.sagepub.com/doi/pdf/10.1177/1023263X18755968
İzzet, Karataş; “Uygulamada İhtiyari Tahkim”, Turhan Yayınevi, Ankara, 1999.
She graduated from Çankaya University Faculty of Law in 2005. In the same year, she completed her master’s degree in Constitutional Law at Çankaya University, Department of Public Law. Until 2011, she worked as an ODY-ÜDY Instructor at Vocational Training Centers affiliated with the Ministry of Transport. For approximately 15 years, she has been working as a legal expert at the Union of Chambers and Commodity Exchanges of Turkey (TOBB). Initially, she was involved in Foreign Trade and International Logistics at TOBB and represented the United Nations for nearly seven years. She is currently serving as a legal expert in the SME Policies Directorate within the TOBB Department of Real Sector R&D and Implementation.
Meanwhile, she is working on completing her doctoral dissertation in Administrative Law at Gazi University, Department of Public Law-Administrative Law. After completing her thesis on TOBB, which is recognized by the Council of Higher Education (YÖK) in Turkey, she plans to publish it as a book.
Additionally, since 2023, she has been writing columns in the London section of “DÜNDAR HUKUK” and “DÜNDAR LEGAL SERVICE CONSULTANCY,” which have established themselves internationally, particularly in the field of energy and renewable energy.