Decision of the Regional Court of Appeal Stating that Misinterpretation of Law Provisions in Arbitration Proceedings Does Not Contrary to Public Order

Introduction

Under Turkish law, the legal remedy that can be applied against arbitral awards is an annulment action. Law on International Arbitration No. 4686 (“IAL”) finds its application area in arbitration proceedings where Turkey is the place of arbitration and which contain foreign elements. In the IAL, which includes provisions regarding trial procedure, the circumstances under which an arbitral award can be annulled are specifically identified. One possible ground for annulment is that the arbitral award is contrary to public order. Even if the violation of public order is not raised by the parties, it must be considered by the court ex officio.

In a recent decision of the 40^th Civil Chamber of the Istanbul Regional Court of Appeal, numbered 2019/2541 E. 2021/1346 K. and dated 05.10.2021 (“Decision”), the Court concluded that the misinterpretation of the law applied to the merits in the arbitral award is not sufficient for the decision to be deemed contrary to public order.

Dispute Subject to the Decision

The Decision concerned a dispute between the parties arising from construction agreement. The contractor resorted to arbitration for the collection of its unpaid receivables. The employer filed a counterclaim with a claim for compensation for the defective work, the cost of the materials that had not been sent and for breach of contract. As a result of the proceedings before the arbitral tribunal, a decision was made to accept the case and partially accept the counter case. The employer alleged that the arbitral tribunal misinterpreted the law to be applied to the merits of the dispute and claimed that the decision was contrary to public order^[1]. Accordingly, they requested the annulment of the arbitral award in accordance with Article 15 of the IAL.

The court of first instance examining the dispute stated that the grounds for annulment are limited to those listed in Article 15 of the IAL. Therefore, the court decided that it was not possible for the court to review the implementation of the substantive law in the arbitral award and that the task of determining whether the decision is contrary to public order does not mean examining whether the arbitrators have applied the substantive law correctly or not. Furthermore, they found that the decision was not contrary to public order and rejected the claim.

Evaluation by the Regional Court of Appeal

On appeal, the plaintiff claimed that the element of violation of public order was misinterpreted by the court of first instance, and that the misinterpretation of the applicable law constituted a violation of public order. Specifically, the plaintiff claimed that concluding that the contractor had been relieved of all his debts and had fulfilled the performance requirement, based solely on the fact that the work has been delivered, was contrary to the relevant articles of the Turkish Commercial Code No. 6102. In addition to the objections regarding public order, the plaintiff alleged that the court erred in rejecting his objections regarding application of Turkish Code of Civil Procedure No. 6100 (“CCP”), as the acceptance of the arbitration rules in the terms of reference document did not mean that the CCP was not applicable.

The Regional Court of Appeal, which examined the dispute, concluded that the arbitral award did not have any aspect that would constitute a violation of public order, and that even if the provisions of the law applicable to the case were misinterpreted, the misinterpretation and application of the provisions of the law does not in itself constitute a violation of public order.

The Regional Court of Appeal found other claims groundless and rejected the plaintiff's application for appeal.

Conclusion

With this Decision, the Regional Court of Appeal has clarified that the misinterpretation and application of the provisions of the law does not in itself constitute a violation of public order. The decision is notable for the Court’s narrow interpretation of the abstract and vague concept of public order.