A Case Study on the Enforcement of Foreign Arbitral Awards in Turkey: Document production v. Confidentiality

Turkey has taken significant steps in becoming an arbitration-friendly jurisdiction over the past decade. Nevertheless, we observe that the foreign arbitral award enforcement proceedings in Turkey are being subject to a more detailed review than other arbitration-friendly jurisdictions on a comparative basis.

Until the very recent past, enforcement proceedings were not clearly defined in terms of court fees and the competent court to hear the case. Although these uncertainties have been cleared, it should be added that each case should still be evaluated on its own merits.

The award analyzed in this short study is dated year 2021 and constitutes a good example of the scope of a Turkish enforcement review. Indeed, the principle of révision au fond and not reviewing the case on its merits in the enforcement of foreign arbitral awards should be interpreted in light of the specific aspects of each case which can and do change.

In the case that is the subject of this brief study, the parties were requested to simultaneously submit to the Arbitral Tribunal and to the counter party a copy of their expert reports and evidence regarding the determination of the amount of damages suffered by the Claimant. Each party is entitled to examine the other party’s evidence and the expert reports received during the proceedings, to submit responses to the reports and to “cross-examine” the experts who submitted the reports.

Both parties submitted their own expert reports on the amount of damages to the file, and no parts of these reports were concealed from the other party.

In order to strengthen its claims, Claimant also relied on the examination reports on the financial structure and value of company [x] for the years 2008, 2009 and 2010, which were obtained long before the lawsuit, as evidence, but submitted a copy of these reports to the arbitral tribunal along with other evidence according to the dispute resolution schedule, The Respondent party stated that these reports were not sent to them and requested that a copy, but the Claimant refused to send a copy, and the Respondent party applied to the Arbitral Tribunal.

The Arbitral Tribunal made a procedural order for Claimant to submit these reports and to send a copy of them to the Respondent party, but this order was again rejected by the Claimant and the PO was not being complied with. Respondent made another request, which was again rejected by the Claimant, this time on the grounds of confidentiality of trade secrets.

Upon Respondent’s renewed request, the Arbitral Tribunal ordered the submission of only the relevant chapters of the Claimant’s review reports for the years 2009 and 2010 relating to the valuation of the company, and ruled that the names of the submitters and the non-valuation related parts of the reports could be changed and submitted, and that the reports could only be reviewed by the Respondents’ counsel and valuation experts, not by the Respondent’s principals. This time, the Claimant removed the information regarding the parts of the 2009 and 2010 reports that they deemed appropriate and submitted them to the file, and the lawyers and valuation experts of the Respondents were able to examine these reports only as to the parts shown to them, but this time, the Respondents were prohibited from sharing the draft of the report prepared by their own experts with the Respondents’ principals and making a joint evaluation.

In the award, the Arbitral Tribunal evaluated the damages suffered by the Claimant based largely on the report dated March 2010, one of the reports commissioned by the Claimant. [some of the language in the quotations has been simplified in the Turkish version]

According to the Court of Cassation, as a requirement of the right to be heard, the parties should be able to freely express and prove their claims before the judicial bodies without encountering any obstacles and should be able to refute the claims of the other party freely without encountering any obstacles within the scope of the right to defense. In this respect, the exercise of these rights also includes easy access to the evidence and documents subject to the dispute. Therefore, the parties should be able to freely examine the evidence, and a matter that is not open to the knowledge of the parties should not be the basis of the decision. This approach is a remarkable assessment. As the examination of a document taken as a basis for a decision by the counter party is deeply concerned with it rights and requirements such as the right to reply to and refuse a claim.

In principle, “protection of trade secrets” is a legitimate right that commercial actors attach major importance to. Moreover, one of the most important reasons for parties to opt for arbitration as their preferred dispute resolution method is the protection of trade secrets, i.e. “confidentiality”.

However, although confidentiality and the protection of trade secrets are legitimate and reasonable rights, these needs cannot be invoked in such a way to jeopardize the right to be heard in the context of a lawsuit, which has an additional and far more important impact on the case. Such a prejudice to the right to be heard may often even prevent the actual establishment of a case. Indeed, substantive evidence is crucial to the proof of the case and its absence will prevent the case from being tried in an equitable manner. On the other hand, the need for confidentiality and protection of trade secrets can still be ensured by some other measures. In this case, it is clear that the right to be heard and the right to defense will prevail when a proportional approach is adopted.

“The framework of public order in domestic law has been drawn by the General Assembly of Civil Chambers of the Court of Cassation as “contradiction to the fundamental values of Turkish law, the Turkish general sense of decency and morality, the basic understanding of justice on which Turkish laws are based, the fundamental rights and freedoms enshrined in the Constitution, the common principles valid in the international arena, the level of civilization of civilized communities, society, political and economic regime, human rights and freedoms”. The determination of whether the foreign judgment subject to the recognition and enforcement request is contrary to the Turkish public order is essentially left to the discretion of the judge. However, while exercising its discretion, the judge must take into account the raison d’être of private international law and the general principles of this law (Court of Cassation HGK 26.11.2014 T. and 2013/1135-2014/973).”

Again in the case at hand, “Regarding the examination of the report dated March 2010, which was largely taken as a basis for the award by the Arbitral Tribunal, in violation of the procedural rules agreed upon by the parties, allowing the report to be submitted to the file incompletely by concealing the names of the persons who prepared the examination report, the part related to the financial model and method used in the calculation of the port value and the purpose of obtaining this report, and concealing the original and copy of the report from the Respondents who doubts the existence of such a report and that it may have been altered, The fact that the Respondents were not even allowed to see the draft report prepared by the Respondents’ valuation expert as part of the report that was the basis of the award, that the Respondents were prevented from cross-examining the persons who prepared these reports, and that all this secrecy was not based on any reasonable and legal basis, raising doubts about the impartiality of the Arbitral Tribunal, it was concluded that the Respondents’ right to access to evidence and to defend themselves during the arbitration proceedings was severely violated.

The restriction of the right of defense and thus the violation of the right to a fair trial also constitutes a clear violation of the Turkish public order.”

In this case, there are some other procedural issues that are not related to the subject matter of the present brief, and the said issues will not be discussed here.

However, the most important conclusion to be drawn from the aforementioned decision is that while Turkish judges refrain from looking into the merits in the enforcement of foreign arbitral awards in Turkish proceedings yet will still use their discretionary powers to ensure that the arbitration proceedings are conducted in accordance with the equity principle.

For this reason, when planning for the enforcement of foreign arbitral awards in Turkey, not only the text of the arbitral award, but also the entire arbitration process should be examined in parallel with the examples of enforcement proceedings and an evaluation should be made in the light of the required experience in both arbitration proceedings and enforcement proceedings

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