Doing Business in Turkey
INVESTING IN TURKEY
Turkey's population is around 72 million and the population growth rate is around 1.5%. The local civilian work force is more than 24 million. The population is much younger compared to European countries (approximately 70% of the population is below the age of 35). Turkey shall continue to constitute one of the largest populations in the Middle East and Eastern Europe. The official language is Turkish. However, many Turkish businessmen speak and conduct transactions in English. French, German and Russian are also widely used for business. Islam is the dominant religion, but Turkey is a secular state.
There has been a considerable increase in the number of companies with foreign capital since the new "Foreign Direct Investment Law" came into force on June 17, 2003. Those established between this date and the end-2005 shows an increase of 101% compared to those before June 17, 2003. According to data, 6,153 out of 11,685 companies are of EU origin, in which Germany leads with 2,045 company followed by the United Kingdom with 926 company. On the other hand the total amount of FDI inflows in 2005 reached $ 9.65 billion, with an increase of 239%, compared to $2.85 billion in 2004.
Reasons for Investment in Turkey
- Unique geographical location
Turkey enjoys a very special location at the crossroads between East and West, overlapping Europe and Asia geographically. The proxy to the new emerging markets in the Middle East and Central Asia creates unique business opportunities.
- A strong international investment record
The experience of more than 11,600 (as of end-2005) foreign capital establishments, including 104 of the Fortune Top 5000 companies, confirms Turkey as a predominant investment location.
- A fast developing economy
The average growth rate for the last 5 years, which is well above many OECD countries, implies a dynamic and growing economy. WTO outputs also state that Turkey is among the most dynamic 20 countries in the world trade. In the last 3 years, Turkey's GDP grew by 24.3%, on a cumulative basis (in real terms). Turkey's real GDP and GNP increased by 8.9% and 9.9% respectively in 2004. This is the highest growth rate in the last four decades and makes Turkey one of the fastest growing economies in the world. Turkey is expected to grow by more than 5% per cent a year in the next 5-to-10 years.
- A huge domestic market
With a population of 72 million and an increasing consumer purchasing power, Turkey offers a huge and dynamic domestic market to investors. In 2004, GNP per capita recorded $4.172 being all times high.
- High-skilled, competitive labour
The Turkish labour force is well-known for its skills and learning capacity, and competitive labour rates offer cutting edge for industries.
- High quality standards
The new quality oriented generation in both manufacturing and services sectors ensures high quality levels; and this is also proven by Turkish companies winning the European Quality Award : Brisa (1996), Beksa (1996), Netas (1997), Beko (1998), Arcelik (2000), Eczacibasi Vitra (2000)
- The gateway of energy resources
Turkey is located at the gateway of the Middle East, Caspian petroleum and Central Asian natural gas to the west, which are regarded as the future energy reserves of the world.
- A state of art telecommunications network
Turkey has a relatively "young" telecommunications network with the latest technology, which can easily compete with the developed countries.
- Strong ties with Caucasia and Central Asia
Turkey is the leading investor in Caucasian and Central Asian Turkic Republics. Due to her strong cultural and historic ties, Turkey provides privileged access and a perfect base to develop business with these countries.
- Portfolio Investments
Turkey has one of the most liberal foreign exchange regimes in the world, with a fully convertible currency as well as a policy that allows foreign institutional and individual investments in securities listed on the Istanbul Stock Exchange, (ISE) since 1989. There are no restrictions on foreign portfolio investors trading in the Turkish securities markets. Decree No. 32 passed in August 1989, removes all restrictions on overseas institutional and individual investment in securities listed on the Istanbul Stock Exchange. Hence, the Turkish stock and bond markets are open to foreign investors, without any restrictions on the repatriation of capital and profits. Decree No. 32 also allows Turkish citizens to buy foreign securities.
Real persons and legal entities residing abroad (including investment trusts and investment funds abroad) can freely purchase and sell all sorts of securities and other capital market instruments.
A foreign institutional or individual investor should use a Turkish intermediary institution for securities activities. (Such as, buying and selling securities, repo, reverse repo, portfolio management, investment consultancy, underwriting, margin trading, securities lending etc.)
Also a foreign investor can hedge currency risk by trading at ISE Derivative Market.
Foreign investors' share of domestic debt has more than doubled on an annual basis, from 4% in May 2004 to 9% in May 2005. Coupled with a strong local appetite for Turkish Lira denominated assets, the ample foreign flow triggered a hasty rally in the local bond market.
Foreign investors' increased participation in the ISE also confirms the increasing appetite for the Turkish market. From an average 54% in 2004, the share of securities under custody in the ISE that are held by foreign institutions has increased to 64% in May 2005, mainly through private placements.
The Istanbul Stock Exchange compound index increased by almost 48% in US$ terms in 2004 and IMKB became the seventh best-performing market among those of the 25 emerging-market countries.
In 2005, the Istanbul Stock Exchange was one of the fastest growing stock markets in the world with the index closing the year at 39,770.70 against 24,971.68 at end-2004, a rise of 59.3 per cent.
A foreign investor is a company registered outside Turkey or a person who is not a Turkish national or a Turkish national residing outside Turkey.
New Turkish Investment Profile
Investment in Turkey has been made more appealing by the introduction of structural changes brought about by the enactment of the new Foreign Direct Investment Law. The main change is the move from the screening system to the facilitation and monitoring method. Two government agencies, the Inter-Governmental Coordination Committee and Investment Promotion Agency, have been set up to focus on the coordination and promotion of foreign investment.
These infrastructural developments have added to the investment attracting assets of Turkey, which has a large population of about 70 million, dynamic and fast developing economy, large domestic market, growing international investment, highly skilled and competitive labour, strong telecommunications and banking, and customs union and EU relations. Turkey also enjoys unique tourist attractions and has the potential of being a hub for the trade with Caucasian, Central Asian and Middle East countries.
Overview of Companies In Turkey
The main company types in Turkey are Private Limited, Joint Stock companies, Commandite and Collective Companies. Foreign businesses can also open a Liaison Office or a Branch in Turkey.
In this section, you can find an overview of these companies in Turkey, access their registration procedure and documentary requirements, or go to the section of a particular company type for further information.
Foreign investors can form a company in Turkey. A foreign investor is defined as a company registered outside Turkey, or a non-Turkish national, or Turkish nationals who reside abroad. The removal of the requirement of the prior ministerial approval has conferred 'Turkish Company' status to all foreign investment based companies with the same rights and obligations of Turkey based companies. Provided all required documents are submitted to a Trade Registry Office, a company can be incorporated in Turkey just in one day.
There are business organisations under special Turkish legislation for which prior establishment approval must be obtained from the Ministry of Commerce and Industry. These regulated sectors are: Banks, Private Finance Institutions, Insurance, Financial Leasing, Factoring, Holdings, Foreign Currency Exchange Offices, Public Warehousing, founders and operators of Free Trade Zones and companies subject to the Capital Markets Law.
Company Types are as follows:
A Limited Company is set up with at least two real persons or legal entities. The liability of the shareholders is limited with the share capital. Minimum capital requirement is 5.000 YTL. Unlike joint stock companies, stock certificates are not issued.
Joint Stock Company
A Joint Stock Company is a limited company that can issue stock certificates, and set up with at least 5 shareholders, real persons or legal entities. The company's stock capital is divided into shares, and the liability of the shareholders is limited with the share capital. Minimum capital requirement is 50,000 YTL. General Assembly, Board of Directors and Supervisory Board are mandatory company organs.
A Commandite Company is a type of company established to carry out a business under a trade name. Whereas the liability of some shareholders is limited to the capital subscribed and paid by the shareholder (commanditer), for some shareholders there is no limitation of liability. The liability of legal entities will be in proportion to their shares. There is no minimum capital requirement. The rights and obligations of the shareholders are determined by the Articles of Association.
A Collective Company is similar to a Commandite Company, except only real persons can be shareholders of a Collective Company and the liability of the shareholders is limited to the capital subscribed and paid by the shareholder. Like a Commandite Company, a Collective Company is set op carry out a business under a trade name without a requirement of minimum capital, where the rights and obligations of the shareholders are also set out in the Articles of Association.
Setting Up A Liaison Office
Companies based abroad can open liaison offices in Turkey provided if commercial activities are not carried out through these offices. For further information, visit the section on Setting up a Liaison Office.
Setting up a Branch
Companies based abroad whose capital is divided into shares can open branches in Turkey. Opening a Branch requires prior approval from the Ministry of Commerce and Industry.
Turkish Language Designations for Company Types
- Limited Company - Limited Sirket
- Joint Stock Company - Anonim Sirket
- Commandite Company - Komandit Sirket
- Collective Company - Kolektif Sirket
- Liaison Office - Irtibat Bürosu
- Branch - Sube
Property and Real Estate transactions are regulated by the Civil Code dated of 1926, and renewed in 2001. The Civil Code of 1926 was the translation of the Swiss Geneva Civil Code which is based on French Civil Code prepared by Napoleon, and consequently the Turkish Civil Law is very parallel to the European system.
Ownership on an "Independent Division" like ownership in one apartment of a Building having many apartments is regulated by the "Flat Ownership Law, No: 631.
In addition to that, the Land Registry Law No: 2644 regulates all issues regarding registration transfer mortgage and all other aspects in this respect.
Types of Ownership
In principle we have 2 types of Ownerships which are:
a) Individual Ownership and,
b) Collective Ownership or Co-Ownership
The Collective Ownership also is divided in 2 main sections, one is continuous collective ownership and the other is "Time Sharing Ownership".
A different system of Collective Ownership is the ownership subject to the Flat Ownership Law No 634 according which each apartment or shop making part of building having many apartments or shops, is registered as an "Independent Division" . Although each owner is the sole owner of his or her apartment or shop (Independent Division) there is a collective Ownership for the common places.
Normally the Owner has all rights and privilege for the benefits generated by the property. In some cases prescribe by Law or by Special Contract, the Owner may separate the right of property and the right to have the benefits which is called "the usufructs" and this usufructs may be transferred to a 3rd party for a certain period of time, and this right of usufructs has to be registered to the Land Registry.
- Rights of Superficie
According to the Civil Code, the owner of the land is owner or everything being under the earth of that land and all over and all of the things which are on the lands, buildings, etc.
In some cases, owner by a contract may assign for a certain period of time the right to use the superficie of the land in which case buildings and installations made on the land belongs to the owner of superficie right.
This right of superficie also has to be registered in the Land Registrar as Separate Ownership.
Most of BOT, (Billed Operate Transfer), contracts are made in the way of Right of Superficie and then although the land belongs to the owner the buildings belongs to the Lessee/BOT Operator for the lease term and becomes land owners property after that time.
According the Land Registry Law each piece of land and in case of "Flat Ownership each Individual Division is separately registered in the Land Registry which is kept by a governmental body called "Land registry and Cadastral General Directorate" established in Ankara and Land Registry Directorates established in all Administrative Districts.
According to the Civil Code everybody may relay on the Official Registries and acquisitions based on good faith are protected by the law. In case of a miss registration the State is responsible for the consequential damages.
Transfer of Land Property can be done only before Land Registry Directorates and no any other department has authority in such transactions except that Public Notaries may do only "Undertaking of Selling and Purchase Contracts".
All kind of Mortgage Agreements must be done before Land Registry and registered to that registry.
Mortgages gives to the owner priority to his receivable in case of the land is sold. If the land is sold by the owner the new buyer is bind by the mortgage and if the debt is not paid in due time the mortgager has the right to put in public sell the mortgage property.
If the property is sold by a Court Action for the non payment of the debt by the owner, the property can not be sold to a lower price of the prevailing mortgages and the mortgager has the privilege to receive its receivables before everybody.
Restrictions on acquisitions
According the last modification made with law No. 5444 published on the Official gazette dated 07. January 2006, to Art 35 of the Law of Real Estate Registry No. 2644 foreign physical persons and legal entities have the right of acquire Real Estate under the following conditions.
- Physical Persons:
Foreign physical persons provided they respect the legal restrictions and within the principal of reciprocity may acquire Real estate as domicile or office.
The total surface that a foreign may acquire as property and or as independent and continuous real Right, can not exceed 2.5 hectares, provided however that the Government may increase this limit to 30 hectares.
- Legal Entities:
Commercial Companies which have legal entity and are duly established according their own country legislation may acquire Real Estate property and independent and continuous Real Rights.
Legal entities out of commercial companies do not have the right to acquire Real Estate property and independent and continuous Real Rights.
Citizens of a State that has a Bilateral Treaty with Turkey are not subject to the limitation mention above in case of inheritance. Those limitations are applied in case of inheritance by will or incase of inheritance to foreigners of a state that Turkey has not a Bilateral Treaty in this respect
The reciprocity may be established by a Bilateral treaty or by Law or just by practice.
Some restriction may be impose to some lans which are in military zone and military authorities have to prepare the necessary maps and inform the real estate registration offices to that end.
The Government has the right to restrict the acquisition of the lands which are special for irrigation, energy, agriculture, mine, sit, belief and cultural or special areas under protection of a strategic importance
With the exception of the collective ownership subject to "Flat Ownership Law" co-proprietors have the right of pre-emption, in case a co-proprietor has sold its share to a third party.
Construction and use restrictions
All buildings can be build after the obtaining a "Construction Permit" from the local municipality, and can be used after a "Building Using Certificate" has been granted from the same municipality, which certificates that the building has been build according the Construction Permit and other rules and regulation in this respect.
Any construction or any using of any building with-out the above mentioned permits or certificates will constitute an infringement against the Law and may give way to serious penalities.
In general Real Estate leasing is regulated by the Code of Obligation and for buildings being within the municipal territories having a roof a special Law no 6570.
According the Code of Obligation there is two types of leasing.
- simple leasing and
- usufructs lease
Usufructs Lease is the leasing of goods or rights which may generate an outcome like agricultural lands or the lease of hotel or resorts estate.
All leases which are not Usufructs Lease are Simple Leases
There is no any special formality to follow except that Real Estate Lease contracts must be done in written form and even some time they are done before Public Notary. Lease Contracts may be registered to the Land Registry in order to preserve the rights of the Lessee in case of the transfer of the Lease to 3rd parties. Specially it is recommended to register to the land Registrar the long term lease contracts.
Labour and Employment
Turkish Labour Law is applicable to all working places not included in the exceptions specified below, to their employers and employers' representatives and to the employees of the said workplaces, regardless of their activities.
Employment contract is the contract whereby an employee agrees to work dependently and the employer undertakes to pay the wage. Unless otherwise stipulated in the Law, an employment contract does not have to consist of a special form. There is a legal requirement for contracts to be evidenced in writing if they are signed for a definite period. The contracts are exempt from stamp duty, other duties and fees. If there is no written contract, the employer is obliged to submit to the employee within two months at the latest a written document indicating the general and special working conditions, daily or weekly work period, basic salary and salary additions, if any, salary payment period, term of contract, if definite and the provisions that the parties should observe in case of termination.
Turkey has followed continental pattern and with the reception and codification of many European laws, legislation has become the most important source of law. To a lesser extent, customary law and case law together with the judicial precedents are the principal sources; finally books of authority or doctrine are subsidiary sources of Turkish law.
The hierarchy of enacted or written laws is as follows:
- The Constitution
- International Treaties about the Protection of Human Rights
- Codes and International Treaties
- Statutory Decrees
The High Courts In Turkey are as follows: Court Of Cassation (High Court of Appeals), The Council Of State, The Court Of Accounts, The Military Court Of Cassation, Court Of Conflicts.
Litigation and Arbitration
The courts in Turkey are in fact divided into civil, criminal and administrative courts. These courts are further divided into lower and higher courts.
The lower courts of civil jurisdiction are the Courts of First Instance, Peace Courts (Justice of the Peace) and Commercial courts. Execution officers, bankruptcy officers and investigation authorities also disputes by means of summary procedures.
The Civil Court of First Instance is basic trial court with general and residual jurisdiction covering everything not specifically assigned to other tribunals. There is one in almost every district or sub-province.
Peace Courts are established to hear certain cases including those where the amount in controversy does not exceed 5.000 NTL, eviction cases, claims of support, and requests for permission to marry.
Some civil matters involving commercial case may also heard in Commercial Courts. A commercial case may also be commenced in an ordinary civil court, if the defendant does not object, or in the absence of a commercial court in the area.
Notwithstanding the division among the courts, there is one high court for both civil and criminal matters, which is called the Court of Cassation or the Supreme Court and which considers the legality of lower court decisions. The Council of State acts as a last resort court on administrative and tax disputes.
In addition to the above courts there are more specialized courts such as military courts, special courts for land registration and courts for labor disputes. The procedural rules applied in these last courts, as well as in the Council of State are basically similar to those of civil cases. Different rules are, however, applied in criminal trials.
Law of Civil Procedure
The manner in which an action is commenced depends upon the nature of the claim involved. In general, claims may be divided into two categories:
- those where liability for a liquidated sum of money depends upon a written instrument signed by the defendant, or where there is a court decision directing payment of a determined amount of money. For this class of cases, a summary and extremely streamlined procedure is available;
- those where liability depends on other issues. For this class of cases a lengthy and cumbersome procedure is followed. This is called ordinary procedure.
There is an appellate court which is called the "Court of Cassation" or sometimes the "Supreme Court". It is divided into thirty-two chambers, each of which has four associate Judges and a President. They are aided by a sufficient number of reporters. There is also a First President of on the entire Court.
An appeal goes from the first instance court to the Chamber of the Court of Cassation which handles the type of subject matter involved. After rendition of the decision either party may ask the Court of Cassation to reconsider it for a variety of reasons. The competent Chamber may either approve or disapprove the lower court's judgment.
Arbitration Taking Place in Turkey
Domestic arbitration is governed by the Turkish Civil Procedural Law of 4 September 1927, as amended in 1981, 1982 and 1985 ("TCPL"). The main legislation governing international arbitration, on the other hand, is the International Arbitrational Law, Number 4686 of 5 July 2001 ("IAL"). Enforcement of foreign arbitral awards in Turkey is subject to the International Private and Procedural Law, Number 2675 of 20 May 1982 ("IPPL") and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the "New York Convention").
The procedural laws of Turkey have been adopted from the Swiss Procedural Code and, therefore, contain quite similar provisions, though with certain modifications. Arbitration taking place in Turkey and not having any foreign element shall be subject to the provisions of the TCPL. However, the parties to arbitration in Turkey are free to choose international procedural rules in a domestic arbitration, such as the Rules of Arbitration of the International Chamber of Commerce (ICC). In this case, it should be noted, however, that the mandatory rules of the TCPL shall be applied to the arbitration proceedings in Turkey regardless of the arbitration rules chosen by the parties.
Pursuant to Article 520 of the TCPL, parties determine the method of appointing arbitrators. If there is no method chosen by the parties, the competent court, as per the provisions of the TCPL, appoints the arbitrators upon the request of either of the parties. The number of arbitrators to be appointed will be three, in accordance with the provisions of Article 520. The TCPL is silent as to whether the parties are entitled to propose the arbitrators. In practice, however, parties are asked to propose their arbitrators to the court. The parties may reject the arbitrators on the grounds set out in the TCPL, including doubts as to the impartiality of the arbitrators. The court's authority is exclusively limited to the appointment of the arbitrators. Once this is completed, the actual dispute on the merits shall be heard before the arbitral tribunal.
Following the appointment of the arbitrators by the court, the plaintiff party must file its claim before the arbitral tribunal in accordance with the general provisions of the TCPL. The arbitrators will also determine a time period within which to respond. If the applicable procedure is not set out in the arbitration clause, the arbitrators will determine the procedure for the arbitration proceedings. Nevertheless, the mandatory provisions of the TCPL will be applicable to the proceedings.
The courts generally determine the fees for the arbitrators. It is not permitted for the arbitrators to determine their own fees. The TCPL provisions will apply to the costs of the proceedings. Furthermore, attorneys' fees are decided on the basis of the Bar Association's tariff. The losing party will be liable for the costs incurred during the proceedings.
Under the TCPL, only Turkish lawyers are permitted to represent the parties in arbitration proceedings. As a general rule, the arbitrators are not obliged to set hearings during the arbitration proceedings and may make their decision based on the parties' respective pleadings. The TCPL provisions govern the rules and conduct of submitting pieces of evidence. In addition, presentation of witnesses is subject to the consent of the opposing party. Contractual and other obligations may be proved only by way of documentary evidence. Pursuant to the TCPL provisions, arbitrators are obliged to render their award within six months following the date of their first session. This time limit may be extended by the parties' request in writing or by a court decision. An extension can only be asked for after the arbitration has started, not in advance. An award rendered beyond the time limit is null and void, and the dispute must then be referred to the competent Turkish courts. In a domestic arbitration, the language of the proceedings is required to be Turkish, as well as the award itself.
After the arbitration procedure is completed in accordance with the applicable rules, the arbitrators submit the award to the competent court, which serves the award on each party. The award may be appealed within fifteen days following such service. Following the elapse of the appeal period and certification by the court, the award becomes final and enforceable.
Possible grounds for appeal of an arbitral award are as follows:
- Rendering the award beyond the aforementioned six-month period or such other period determined by the parties
- Rendering an award on matters not demanded by the parties
- The integrity of the arbitral process, that is, whether the arbitrators were impartial or had exceeded their competence and
- Failure to render a decision on matters requested by the parties.
The procedural rules regarding international arbitration are set forth in the IAL. Before the promulgation of this Law, there was no difference between the procedures governing domestic arbitration and international arbitration under Turkish law. Therefore, all arbitration proceedings taking place in Turkey, whether having a foreign element or not, were subject to the TCPL's provisions, provided that the parties to the arbitration did not choose any other foreign laws (for example, in the case of a foreign element) or international procedural laws to be applied to the arbitration proceedings. The IAL is applicable in cases where:
The place of arbitration for resolving a dispute involving a "foreign element" is determined as Turkey; or
The provisions of the IAL are chosen by the parties, the arbitrators or the arbitral tribunal as the law applicable to arbitration proceedings.
In addition, the resolution of disputes arising from concession agreements pertaining to public services that contain a "foreign element" is also subject to the IAL.
Pursuant to the IAL, the existence of one of the conditions below demonstrates the existence of a "foreign element" and the arbitration is considered to be international arbitration if:
The permanent residences or business places of the parties to an arbitration agreement are in different States, or in a State:
other than the place of arbitration; or
other than the place of performance of the important part of the obligations arising from the main contract or the place mostly related with the dispute;
At least one party to the main contract, which constitutes the basis of the arbitration agreement, has brought foreign capital into Turkey or enforcement of the main contract necessitates the execution of a credit or security agreement to bring foreign capital into Turkey; or
There is a cross-border transfer of capital or commodities by virtue of the main contract or legal relationship, which constitutes the basis of the arbitration agreement.
Under the IAL, the parties are free to determine the procedural law to be applied by the arbitrators without prejudice to the mandatory rules of the IAL. Where the parties do not select such a procedural law, then judgment shall be made in accordance with the rules of the IAL. Pursuant to the IAL, the parties are free to determine the number of arbitrators. If the parties have not determined the number of arbitrators, then three arbitrators shall be selected.
Unless otherwise agreed, the arbitral tribunal will issue a preliminary injunction and preliminary attachment upon the request of the parties. Unless otherwise agreed by the parties, the duration of the arbitration shall be one year starting from the appointment date of the sole arbitrator or date of the first hearing of the arbitral tribunal, as the case may be. The time limit for rendering the award may be extended during the proceedings upon the mutual request of the parties by a court of first instance.
The arbitral tribunal renders its decision based upon the agreement between the parties and the substantive law determined by them, also taking into consideration the customary and commercial usage of law. The selection of the law of a State shall be considered as the selection of the substantive laws of such State rather than the procedural laws or rules relating to conflict of laws. Where the parties have not determined any substantive law, the arbitral tribunal shall make its decision based upon the substantive laws of the State most related with the dispute.
The arbitral tribunal may decide ex aequo et bono provided that the parties give such authorization.
The sole form of appeal against an arbitration decision is the filing of an annulment claim before the competent court of first instance. Any annulment suit shall be held immediately. It may be filed within thirty days from the notification date of the arbitral award to the parties, and shall have the affect of suspending enforcement of the arbitral award. The parties may totally or partially waive their right to file an annulment suit. The decision of the annulment suit may be appealed. The court of first instance shall only grant an enforceability certificate upon finalization of the decision regarding the rejection of the annulment claim.
Arbitration outside Turkey
Parties to a contract are free to choose the seat and venue of arbitration to be held outside Turkey. Such freedom of the parties extends even to disputes not having any foreign element between Turkish parties. In one of its decisions, for instance, the Turkish Court of Appeal approved the validity of the arbitration venue being London between two Turkish entities. An agreement between the parties for arbitration outside Turkey would avoid the applicability of the mandatory provisions of the IAL or the TCPL, as the case may be, as well as the possible intervention of the Turkish courts in the arbitration proceedings, provided also, however, that the relevant arbitration clause excludes the applicability of the TCPL or IAL provisions.
Enforcement of Foreign Arbitral Awards In Turkey
Under the IPPL, the enforcement of foreign arbitral awards is subject to the issuance of an enforcement order by a Turkish court. The New York Convention was ratified by the Turkish Parliament on 8 May 1991 by Law Number 373 1, and came into effect on 1 October 1992. Turkey ratified the New York Convention with two reservations: firstly, application of the Convention to the recognition and enforcement of arbitral awards rendered only in the territory of a Contracting State; and, secondly, the "commercial matter" reservation. Commercial activities are defined quite widely pursuant to Articles 3 and 21 of the Turkish Commercial Code. Therefore, the commercial matter reservation does not limit, in fact, the application of the New York Convention.
In light of the above, foreign arbitral awards rendered in other Contracting States can be recognized and enforced in Turkey subject to the provisions of the New York Convention. Recognition and enforcement can be denied by a Turkish court on the grounds set out in Articles V(I) and V(II) of the New York Convention. The most important ground for any possible denial of enforcement would be on the basis of public policy considerations. If the enforcement of an award would be contrary to Turkish public policy, a Turkish court shall dismiss the enforcement proceedings on such ground. Turkish laws do not define the content of public policy, so it is left to the courts to determine the violation of public policy on a case-by-case basis, which leads to the fact that the courts consider public policy in different ways.
Article 1(1) of the New York Convention states that an arbitral award shall be deemed to be foreign if the decision was rendered within the territory of a State other than the State where the recognition and enforcement are sought or if the decision is not considered a domestic award in the State of enforcement. Proving that the award is rendered in a State which has ratified the New York Convention shall be sufficient for the application of the New York Convention. The nationality of the parties or the law applicable to the dispute is irrelevant for determining the applicability of the New York Convention.
Under the IPPL, the enforcement of a foreign arbitral award by a Turkish court will be subject to the following conditions:
The presence of reciprocity between Turkey and the relevant foreign State, such reciprocity being evidenced by:
a treaty between Turkey and the foreign state;
a provision of the laws of the foreign State permitting enforcement in such country of awards; or
de facto enforcement in the foreign State of foreign awards;
The subject matter of the judgment does not fall within the exclusive jurisdiction of the Turkish courts;
The judgment is not clearly against Turkish public policy rules;
Due process is observed under the rules of the jurisdiction from which the award emanates;
The award is not incompatible with a judgment of a court in Turkey between the same parties and relating to the same issues; and
The award is rendered in accordance with the law determined by Turkish conflict of laws rules relating to the personal status of Turkish citizens.
Among the aforesaid conditions, the concept of public policy still continues to be an area of conflict. This is quite crucial, since a foreign arbitral award may not be enforced if the court dealing with the case is satisfied that the enforcement of the award would be contrary to Turkish public policy rules.
Legislative Changes Regarding Concession Agreements
In August 1999, the Turkish Government liberalized some of its legislation in order to pave the way for the commercialization of its infrastructure projects, including particularly the power sector. Although the privatization of infrastructures in Turkey has been envisaged in various laws since the 1980s, the lack of a proper legal framework permitting the use of international arbitration in infrastructure projects has impeded or delayed the financing of such projects to date.
Historically, under Turkish law, infrastructure projects have been considered "public services" and are undertaken and made available to the public by or under the supervision and inspection of the State or other public entities in order to meet general and common needs or to attain a public purpose. Pursuant to the provisions of the Turkish Constitution prior to recent changes in 1999, the provision of such services by private parties would be subject to the jurisdiction of "administrative law" and, therefore, any disputes arising out of concession agreements between a project company and the relevant administration would be adjudicated before the Turkish administrative courts. The Turkish Constitution, until 1999, did not permit the use of international arbitration in such agreements.
The above restrictions upon reference to international arbitration hindered the raising of necessary finance from international markets, which was required for such infrastructure projects. The Turkish Government, therefore, took a radical step towards amending its Constitution to allow international arbitration in such administrative contracts. Pursuant to the Turkish Constitution amendments, which were implemented by Law Number 4446 with effect from 14 August 1999, international arbitration provisions can be agreed upon between the parties in concession agreements. Following this liberalization of the Turkish Constitution, certain enabling legislation has been enacted to implement the use of international arbitration provisions in concession agreements or in contracts envisaging the provision of public services by private parties.
Although Turkey has had a relatively poor track record in terms of enforcing foreign arbitral awards, in recent years, more and more enforcement judgments have been rendered by the Turkish courts under the New York Convention and the IPPL. The Turkish Government's recent liberalization laws permitting the use of international arbitration in concession agreements are also noteworthy in indicating the strong will and determination of Turkey towards globalization.
The Turkish government accepts binding international arbitration of investment disputes between foreign investors and the state. In 2001 the Parliament approved a law expanding the scope of international arbitration in Turkish contracts. However, at least one American company reports that the judicial system in Turkey has not recognized international arbitration awards. (Turkey has been a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1992. It has been a party to the ICSID Convention since 1989.)
The Turkish government passed legislation in February 2001 that aims to introduce a fully liberalized energy market, under which private firms will be able to develop projects with the approval of the Energy Market Regulatory Authority, an independent regulatory body. The state electricity utility has been unbundled into production, transmission, distribution and trading companies, but little progress has been made in privatizing power generation and distribution.