Review of Arbitration Agreement in Mandatory Mediation Procedures

Introduction

This article points out various discussions that may arise when a party applies for a mandatory mediation procedure despite having an arbitration agreement in place, the impact of an arbitration agreement upon mandatory mediation procedures, and its review by the mediator. Pursuing voluntary mediation procedures by the parties, despite having an arbitration agreement in place, and/or in addition to it, and the effect of those procedures on the arbitration agreement, does not fall within the scope of this article.

Mandatory Mediation and Arbitration Agreement as an Exclusion

The condition of applying to mediation prior to filing a lawsuit with the courts was introduced by Law on Mediation in Civil Disputes No. 6325 (“Law No. 6325”) for certain disputes. The violation of this pre-condition is regulated under Article 18/A(2) of the same law, as the refusal of the claim on procedural grounds, without any further action to be taken by the court.

Commercial disputes were included in the scope of mandatory mediation pursuant to Article 20 of Law No. 7155 on Procedures of Initiation of Execution Proceedings Regarding the Receivables Arising from Subscription Agreements. It is regulated under Article 5/A of Turkish Commercial Code No. 6102 (“TCC”) that commercial claims concerning the payment of monies or other types of compensation require a completed procedure of mandatory mediation.

As well, Article 18/A(18) of Law No. 6325 regulates an exemption from mandatory mediation provisions if there is an arbitration agreement between the parties. According to this Article, the provisions on mandatory mediations shall not apply if the dispute is to be resolved through arbitration or another alternative dispute resolution method.

In practice, the courts have applied the above-mentioned provisions, and a number of commercial lawsuits have been rejected on procedural grounds at the very beginning of the proceedings, since the mandatory mediation procedures had not been completed.

The Lack of Jurisdiction of State Courts in the Presence of an Arbitration Agreement

Pursuant to Articles 116(c) and 413 of the Code on Civil Procedures (“CCP”), in the presence of an arbitration agreement, and unless it is rendered invalid, the respondent may present it as a preliminary objection, and the courts shall reject the claim on procedural grounds due to the arbitration agreement in place, at that stage. Therefore, in principle, if there is an arbitration agreement between the parties, the dispute cannot be referred to the state courts. 

On the other hand, it is controversial as to whether the courts should determine the validity of the arbitration agreement when an action is brought before the courts.[1] Some scholars argue that the courts should review the validity of the arbitration agreement, in detail, and render its decision at the end of such review. An opposing view argues that upon an objection to arbitration, a court’s review should be limited to a prima facie review, it should reject the case, and leave the actual review of the validity of the arbitration agreement to the arbitral tribunal. The latter view is based on Article 422 of the CCP and Article 7(H) of the International Arbitration Act. Pursuant to those Articles, the arbitral tribunals have the capacity to decide as to their own jurisdiction. Although this principle, referred to as the kompetenz-kompetenz, is acknowledged in general, its scope remains controversial in some respects. However, the pro-arbitration view supports that review should be left to the arbitral tribunals.

Regardless of the accepted view, it is clear that the competence of the state courts to review the validity of the arbitration agreement, and the extent of such review, remains controversial. The performance of such review by a mediator would bring with it other issues.

Applying for Mandatory Mediator Despite Having an Arbitration Agreement

As mentioned, above, applying for a mandatory mediator is the pre-requisite of a case before being brought before the courts. In such case, what should be the impact of an arbitration agreement on the process of mediation when, despite having an arbitration agreement in place, a party applies for mandatory mediation as a pre-requisite prior to a claim being brought before a court?

The first point to consider is that the provisions concerning mandatory mediations shall not apply if there is an arbitration agreement between the parties. Law No. 6325, which is the legal basis of the powers of the mediator, expressly states this in Article 18/A(18). Hence, it would not be possible to proceed with mediation sessions if there is an arbitration agreement in place.

However, when and how could a mediator decide that an arbitration agreement is in place, and that the mediation process should not continue? The mediator should first question whether they can review the presence and the validity of the arbitration agreement, even prima facie, when they are rendering such a decision. At this point, it should be pointed out that the mediator does not have the power to render any decision regarding the dispute, and its duty is to serve as an intermediary to assist the parties to meet and negotiate a settlement. Also, pursuant to Article 15/4 of Law No. 6325, only judges are vested with the authority to make judicial actions, and the mediator does not hold that power. Likewise, in the presence of a view that argues the validity of an arbitration agreement should not be considered by the court, a fortiori the mediator shall not be able to conduct such review. Under these circumstances, the mediator may decide that the dispute is not subject to provisions on mandatory mediation when an objection is made on the basis of an arbitration agreement being in place. In this regard, it might be considered that the mediator could decide that the dispute is not eligible for mediation, pursuant to Article 17/d of Law No. 6325.[2]

In this case, another concern should be considered. If the mandatory mediation procedure is not completed, an action may not be brought before the courts. Therefore, hypothetically, if the arbitration agreement is invalid, the claimant’s right to claim the invalidity of the arbitration agreement before the courts will be frustrated, if the mediator decides as suggested, above. This would present a greater concern, arguing that the courts should review the validity of the arbitration agreement beyond prima facie examination. On the other hand, if it is to be accepted that the court should not perform any substantial review, this concern vanishes.

Lastly to consider is the impact of participation of the parties to mandatory mediation sessions respecting the arbitration agreement. If one of the parties initiates the mandatory mediation procedure, and the other party involved in this procedure raises no objection, would it be possible to argue that the parties have implicitly abrogated the arbitration agreement? This question should be answered to the negative. Since mediation is not a judicial proceeding, whether or not the first objections were presented at this stage should not be sought. On the other hand, it would be reasonable to raise this arbitration objection during the mediation meetings, and have this objection noted in the meeting minutes, since the mandatory mediation sessions were accepted as the preliminary stage of the judicial proceedings.

Conclusion

The mandatory mediation provisions were adopted to ease the workload of the courts, and they do not apply, in principle, if the parties have already agreed to an alternative dispute resolution method, including arbitration. However, there is no obstacle for a party to initiate a mandatory mediation despite having an arbitration agreement in place. In such case, the mediator should remain within its powers, and should refrain from making any legal statement, either in favour, or against, the arbitration agreement.

[1] Regarding these discussions, please see. Öztürk, Selen: “The Objection of Arbitration and the Courts’ Degree of Review of the Arbitration Agreement”, Erdem & Erdem Newsletter, February 2014.

[2] However, it is open to discussion as to whether this is, indeed, an eligibility or a competence issue.