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Court Of Cassation Rendered Significant Judgment Determining An Arbitration Agreement Involving A Foreign Element Is Not A Violation Of Law No. 805

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In its decision no. 2020/1714 - 2020/2652 dated October 2, 2020, the 15th Civil Chamber of the Court of Cassation rendered that if a dispute subject to arbitration proceedings involves...

Turkey Litigation, Mediation & Arbitration

Recent Development

In its decision no. 2020/1714 - 2020/2652 dated October 2, 2020, the 15^th Civil Chamber of the Court of Cassation rendered that if a dispute subject to arbitration proceedings involves a foreign element, an agreement executed between two Turkish parties in a foreign language does not violate the Law No. 805 on the Compulsory Use of Turkish in Economic Enterprises ("Law No. 805").

Event Subject to the Court of Cassation's Assessment

As previously assessed in detail in the alert we published on May 18, 2020, the 15^th Civil Chamber of the Court of Cassation, with its decision No. 2019/2472 - 2019/3640 dated September 26, 2019 ("Reversal Decision"), took a significant step for arbitration and public policy. By interpreting the concept of public policy in a narrow way, the Court of Cassation reversed the annulment of an arbitral award decision given by the Regional Court of Appeals ("Regional Court") in the capacity of a first instance court. You can read the alert by clicking here.

In the dispute subject to the Reversal Decision, the Regional Court considered the lack of a certificated translation of an agreement executed between two Turkish parties in a foreign language as a procedural deficiency affecting the applicable substantive rules as per Law No. 805, and therefore, along with other grounds, it annulled the arbitral award because it breached public policy. The 15^th Civil Chamber of the Court of Cassation assessed the Regional Court's decision in detail in the Reversal Decision, and concluded that the failure to have an agreement executed in a foreign language translated into Turkish is not a violation of public policy. It was concluded that although the Law No. 805 was not explicitly referred in the Court of Cassation's Reversal Decision, the fact that the Court of Cassation sustained the arbitral award supports the interpretation that the Court of Cassation implicitly did not consider the execution of the agreement between two Turkish parties in a foreign language as a breach of public policy.

What does the Court of Cassation's Definite Judgment Say?

After the Reversal Decision, the Regional Court made a reassessment within the framework of the Court of Cassation's interpretations, and with its decision no. 2019/23-2020/2 dated January 23, 2020, it sustained the arbitral award in line with the Reversal Decision. The plaintiff appealed this decision. As a result of the appellate review, the 15^th Civil Chamber of the Court of Cassation dismissed the plaintiff's appeal request and rendered a definite judgement that the arbitral award is not in violation of public policy.

Differently from the Reversal Decision, the Court of Cassation explicitly stated in the definite judgment that there is no violation of the Law No. 805 as the dispute subject to the arbitration proceedings involves a foreign element as per Article 2 of the International Arbitration Law:

"As a result of the review made within the scope of the annulment grounds set forth under Article 15 of the International Arbitration Law, it has been understood that there are no grounds for the annulment of the arbitral award in terms of the prerequisites and applicable law, and in particular, there is no violation of the Law No. 805 as the dispute subject to arbitration proceedings involves a foreign element as per Article 2 of the International Arbitration Law [...]"

The Court of Cassation rendered that an execution of an agreement involving a foreign element between two Turkish parties in a foreign language does not violate the Law No. 805. As stated in our previous alert, we agree with the Court of Cassation's clarification, viewing it as correct and in line with the established interpretations on the implementation of the Law No. 805, which in our opinion, was recently and needlessly opened up for discussion

Conclusion

The Court of Cassation rendered a significant judgment for both arbitration and the implementation of Law No. 805, which led to important discussions in terms of the agreements executed with Turkish parties and foreigners. The Court of Cassation explicitly stated that the execution of an agreement subject to arbitration, which was signed between two Turkish parties and involves a foreign element, in a foreign language would not constitute a violation of the Law No. 805. With this decision, the Court of Cassation made significant determinations regarding concerns about the implementation of the Law No. 805.

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