Counter-claims Under ISTAC Arbitration Rules
Dr. Ersin Erdoğan
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Counter-claims and their admissibility are one of the problematic issues which are encountered in international arbitration practice. Neither the provisions related to arbitration under the Civil Procedure Code nor the International Arbitration Law include any rules regarding counter-claims. Nevertheless, this does not mean that these laws exclude the admissibility of counter-claims in arbitral proceedings. In other words, silence of the legislator does not mean that it deliberately disallows counter-claims in arbitral proceedings. It is natural under the right of defense that respondent shall also have the right to raise its counter-claims. Recognizing the admissibility of the counter-claims solves the first part of the problem. The main discussion at the international level is rather focused on the conditions of the counter-claims. In this respect, there are two contested points: The first question is whether a counter-claim may be raised only under the same arbitration agreement with main claim. The second one is that whether the counter-claims and main claims have to arise from the same legal relationship or not.
The Arbitration Rules of Istanbul Arbitration Centre (“ISTAC Arbitration Rules”) differ from the Civil Procedure Code and the International Arbitration Law; and provides rules about counter-claims in paragraphs six to eight of Article 8. According to Article 8 of ISTAC Arbitration Rules;
“The respondent may raise any counterclaim along with the Answer to Request for Arbitration. With respect to the counterclaims, the following matters should be provided: a) Explanations concerning the nature and circumstances of the dispute giving rise to the counterclaim and the facts upon which the counterclaim is based; b) Along with the relief sought, the amount of the any quantified claims, and for the claims for which the amount cannot be determined, an estimate of their monetary value; c) A copy of the Arbitration Agreement and any relevant documents, which are considered necessary.
The respondent shall deposit the registration fee in accordance with the Istanbul Arbitration Centre Rules on Costs and Fees Scales (Appendix-3) that are in force on the date of the submission of the counterclaim.
Within 30 days from the notification of the Answer to Request for Arbitration, the claimant shall submit its response to the respondent’s counterclaims. The Secretariat may, upon the request, grant additional time to the claimant.”
In the sixth paragraph of Article 8 of ISTAC Arbitration Rules, it is stated that counter-claims are admissible under these rules. In addition to this, the ISTAC Arbitration Rules regulate also the content of the counter-claims and what must accompany it. It can be easily seen that it is very similar to the Request for Arbitration.
Nevertheless, conditions of counter-claim are not explicitly provided in ISTAC Arbitration Rules, which is also different from state-courts’ proceedings. For state-courts, according to Article 132 of the Civil Procedure Code, either the main and counter-claims have to be in connection with same relationship or they must have set-off relationship. ISTAC Arbitration Rules does not provide any specific rule about these conditions of counter-claim.
This may lead to two alternative interpretations. First one is that, ISTAC Arbitration Rules does not require any extra and specific condition for admissibility of counter-claim, as it does not set out any rule in this regard. In the second alternative, it should be considered granted that there must be connection between two claims, thus ISTAC Arbitration Rules does not need to express it clearly and just neglect it [1]. The analysis should made in accordance with the general sense and reasoning of ISTAC Arbitration Rules.
Counter-claim, as a concept, has the following meaning: It is a case, which is commenced by the respondent through their Answer to the Request for Arbitration, regarding the claim of the respondent that is wished to be resolved separately with the main claim. Although the proceedings are carried out under the same case file, the counter-claim is actually a separate lawsuit. Therefore, the seventh paragraph of Article 8 of ISTAC Arbitration Rules clearly states that the respondent shall separately deposit the registration fee for their counter-claim. Since in the existence of a counter-claim there are in fact two different lawsuits, the rules about consolidation in ISTAC Arbitration Rules should also be taken into account to establish the conditions of counter-claims [2]. In case of consolidation as well, two different lawsuits will be heard together, if the required conditions are met. Article 11 of ISTAC Arbitration Rules sets out the following conditions for the admissibility of consolidation:
“ Upon the request of any party, the Board may consolidate two or more arbitrations that are pending under the Istanbul Arbitration Centre Arbitration Rules into a single arbitration, provided that the following conditions are satisfied: a) If the parties to the arbitrations which are requested to be consolidated are different, and all parties have agreed to the consolidation; or b) If the parties to the arbitrations which are requested to be consolidated are the same, and i) The parties have agreed to consolidation; or ii) All of the claims in the arbitrations are based on the same arbitration agreement; or iii) If the claims in the arbitrations are based on more than one arbitration agreement, the disputes in the arbitrations arise in connection with the same legal relationship and the arbitration agreements are compatible.”
Sub-paragraph (b) of the above provision should be taken into consideration in terms of counter-claims. Accordingly, in order for the consolidation of two arbitrations between two same parties, both parties shall agree to it, or both of the claims should be based on the same arbitration agreement/clause, or there should be a connection between the disputes and the arbitration agreements/clauses should be compatible. In terms of the counter-claims as well, it is obvious that if both parties agree counter-claims are admissible. The parties should be able to flexibly establish the procedure of the arbitral proceedings within the boundaries of mandatory provisions of law. However, in most of the cases, parties cannot reach an agreement on it. This is particularly because the claimant has an interest in inadmissibility of the counter-claim as it will prolong the main proceedings and lead to extra costs.
If the main claims and the counter-claims are based on the same arbitration agreement, it should be accepted that the counter-claims are admissible [3]. This is inherent because firstly, if both cases are based on the same arbitration agreement there strictly is a connection between these cases. Secondly, it is very usual to encounter a counter-claim in both arbitration and state-court proceedings. Therefore, objection of the claimant will be in violation of good faith principle. Third situation arises when there is a connection between both claims and the arbitration contracts/clauses are compatible. The reason behind seeking a connection for consolidation is that it will be conducive to procedural efficiency and decrease the costs. Also, arbitrators are selected according to their expertise. If there is no connection between two cases (the main and the counter-claim), it is possible that the arbitrator will have to decide on an issue, in which such arbitrator lacks expertise. Now then, if the “connection” criterion is not required for admissibility of the counter-claims, this would cause a contradiction with the aim of the provisions limiting consolidation of claims under ISTAC Arbitration Rules. In addition to this, it is against the principle of party equality if the claimant is not allowed to consolidate his/her another claim with the main claim due to Article 11 whereas the respondent may have the chance to bring an irrelevant counter-claim if the connection is not required for counter-claim.
As a result, for the admissibility of counter-claim, provisions of Article 11 of the ISTAC Arbitration Rules, which are related with consolidation, should be taken into account. In this respect, if parties cannot agree and the disputes arise from different arbitration contracts/clauses, then both of them must be in connection with the same legal relationship and the arbitration contracts/clauses must be compatible.
[1] For example, ICC Arbitration Rules regulate also counter-claim in Article 5 of it. Article 5 of ICC Arbitration Rules is very similar to ISTAC Arbitration Rules. However, it is really contested among authors whether connection is required also for ICC proceedings or not. Some authors put forward that counter-claims are allowed only when it is provided that the arbitration agreement/clause covering the Claimant’s also extends of those of the Respondent and they arise from very same relationship. In this respect, see: Derains, Yves/ Schwartz, Eric A., A Guide to the ICC Rules of Arbitration, The Hague 2005, s. 69; Reiner, Andreas, ICC Schiedsgerichtsbarkeit, Wien 1989, s. 43. However, some other authors argue that since the connection condition does not explicitly stated, it will be sufficient that two arbitration agreements/clauses are compatible. In this respect, see: Stolzke, Sebastian, Aufrechnung und Widerklage in der Schiedsgerichtsbarkeit, Köln 2006, s. 123.
[2] In reverse, to defend consolidation of cases under the UNCITRAL Model Law, it is argued that existence of counter-claim in Model Law allows also consolidation. See, Ermenek, İbrahim, “Hakem Yargılamasında Bağlantılı Davalar”, Prof. Dr. Hakan Pekcanıtez’e Armağan, s. 1245.
[3] The Board bears the discretion at this stage. In other words, the Board takes into account the stages of each proceedings. For instance, if assessment of evidence is complete in one of the proceedings, the consolidation request may be rejected.
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Application Conditions for ICSID Arbitration Within the Frame of Washington (ICSID) Convention
Att. Gizem Önen & Benay Çaylak
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- WASHINGTON (ICSID) CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES ARISING OUT OF FOREIGN INVESTMENTS
At the present time, international investments which have become a necessity as a result of developing technology and globalization in the 20 th century, have also become the basis of international commerce and agreements. International investments come with a lot of advantages for both the investor and the host state. However, the complicated and long process of investment can make profit, continue and end without complications, only if certain conditions are met and resources are provided. Political, economic and judicial stability of the host state is required for resource transfer to be possible and bilaterally beneficial in most of the foreign capital investments (particularly for long-term industrial and permanent investments). However, most of the time, a stable structure in developing countries that will not constitute a risk for foreign capital could not be precisely provided.
“ World Bank is an organization that works for sustainable solutions that reduce poverty and build shared prosperity in developing countries[1].” In accordance with these objectives, it has been tried to overcome the contradiction between the necessity of foreign capital in developing countries and the political, economic and judicial instabilities in question, through conventions of World Bank. In this context, Multilateral Investment Guarantee Agency Convention (MIGA) was signed under the auspices of World Bank [2] and a Guarantee Fund was constituted. Another convention that was signed regarding this topic is the ‘Convention on the Settlement of Investment Disputes Between States and Nationals of Other States’ or the ‘Washington (ICSID) Convention’ (‘Washington Convention’)’ [3]. At the present time, this convention has been approved by a significant number of states including Turkey. In this way, the objectives that were considered during the drafting and for the implementation of the Washington Convention are becoming more and more extensive and universal from day to day.
- INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID) AND ITS APPLICATION CONDITIONS
- International Centre for Settlement of Investment Disputes (ICSID) within the context of Washington Convention
Within the frame of Washington Convention, ‘International Centre for Settlement of Investment Disputes (ICSID) (‘Centre’)’ was founded [4] and an institutional arbitration procedure special to this centre has been established. ‘ MIGA and ICSID have focused on empowering private sector in developing countries. Through these institutions, the World Bank Group provides financing, technical assistance, political risk insurance and settlement of disputes to private enterprises, including financial institutions[5].’
‘ Centre does not arbitrate directly but conducts the procedure of arbitration[6]. In principle, arbitrators who will resolve the case are chosen by the parties and the president of the tribunal is determined by agreement of the parties[7].’
- Conditions for a dispute to be resolved by ICSID
The most important point to consider regarding the ICSID arbitration is that all disputes cannot be resolved in ICSID arbitration. Centre lays down a few conditions regarding both the characteristics and parties of the dispute, in order for the dispute to be resolved in ICSID arbitration. These conditions are cumulative, thus, if even one of them is not met, the dispute cannot be resolved in ICSID arbitration. These conditions are as follows:
- Written Agreement
Firstly, there has to be a mutual consent of the parties to the investment dispute to apply to ICSID for the resolution of the dispute. At this point, effectiveness of the Washington Convention between state of the investor and the host state is not sufficient but, in each dispute, there has to be a particular agreement that stipulates the authorization of the Centre [8]. ‘ Consent for judicial power of the centre can be performed by the way of (1) an explicit or implied declaration of consent of the defendant after the claimant’s arbitration application is received by the defendant; (2) an agreement which encourages and protects investments between the host state and investor’s state; (3) an investment contract between the host state or governmental institution and foreign investor[9].” In addition, some host states (for instance Egypt) have introduced provisions that give permission to taking the disputes to which they are a party before ICSID directly [10]. Since the condition of mutual consent in each dispute has caused a decrease in applications to ICSID, states signed bilateral and multilateral agreements regarding encouragement and protection of investments that include arbitration clauses. Turkey is also a contracting state in a lot of bilateral and multilateral agreements that focus on these topics [11].
- Being a Contracting State
Another condition for taking a dispute to ICSID arbitration is that there has to be a dispute between a contracting state of Washington Convention and a national of another contracting state. ‘National of another contracting state’ refers to a natural or legal person who has the nationality of a contracting state other than the state party of the dispute on the date the parties submitted their consent to take the dispute to arbitration before the Centre [12].
- Existence of an ‘Investment Dispute’
The last condition for applying to ICSID is the existence of a dispute that stems from an investment [13]. Due to the fact that the definition of the concept of “investment” is not included in the Convention, ICSID practices are guiding at this topic. According to the case of Salini: ‘ (1) Investment has to certainly include ‘spending money or financial participation’; (2) Investment has to stay in the host state for a while; (3) Investor has to take risk; (4) Investor has to contribute to the economy of the host state[14].’
In addition to these criteria, in practice, making the investment with good faith and acting in accordance with the host state law have also been counted as conditions [15].
- CONCLUSION
International interactions that have increased in conjunction with globalization has caused the development of international trade. This situation has affected the trade relations between developing countries and developed countries and turned international investments into a necessity. Foreign capital investments depend on stability of the host state and its ability to provide judicial reassurance by the way of dispute resolutions, mainly arbitration. In this context, with the purpose of resolution of possible disputes, institutions such as Istanbul Arbitration Centre have been founded [16].
ICSID, which is an important institutional arbitration centre that resolves disputes arising from multinational investment agreements, has been founded and developed by, and gained experience thanks to the World Bank. It should not be forgotten that all the application conditions set by the Washington Convention in order for the dispute to be resolved by ICSID, which are a written agreement, being a contracting state and existence of an investment dispute must be met.
[2] Turkey is a party of Multilateral Investment Guarantee Agency Convention. For the whole Convention text, see Official Gazette: 6.12.1988-20011. See also Cemal Şanlı, Emre Esen, İnci Ataman-Figanmeşe, Milletlerarası Özel Hukuk, 4th Edition, İstanbul, Vedat Kitapçılık, 2015, p.660
[4] Washington (ICSID) Convention, Article 1(2)
[7] Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.662. Relevant Convention articles: Washington (ICSID) Convention Article 12 ff.
[8] Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.663. Relevant Convention article: Washington (ICSID) Convention Article 25
[9] Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.663
[10] 14.04.1988 dated case of ‘SPP vs. Arab Republic of Egypt’ conclueded by ICSID; see also Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.663
[11] Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.664. For the list of the bilateral or multilateral agreements regarding encouragement and guarantee of investments which Turkey is a party of and their Official Gazette references, see Cemal Şanlı, Uluslararası Ticari Akitlerin Hazırlanması ve Uyuşmazlıkların Çözüm Yolları, İstanbul, Beta Basım Yayım Dağıtım, 2013, p.454 ff.
[12] Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.664-665. Relevant Convention article: Washington (ICSID) Convention Article 25(2) (a)-(b)
[13] Washington (ICSID) Convention Article 25(1)
[14] ARB. 00/4 numbered ‘Salini Constuttori SPA-İtlstrada SPA/Morocco’ case concluded by ICSID; see also Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.666
[15] ARB. 06/5 numbered ‘Phoenix Action, Ltd. – Czech Republic’ case concluded by ICSID; see also Şanlı. C., Esen, E., Ataman-Figanmeşe, İ., p.666
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Points to Consider in Drafting of an Arbitration Agreement Within the Scope of ISTAC Rules
Nevzat Erkam Yıldırım
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Arbitration is an alternative dispute resolution method that relies on parties’ will. In arbitration, parties agree to settle their dispute by institutional or ad hoc arbitration. Founded in 2015, ISTAC is an institutional arbitration centre that provides arbitration and mediation services for both Turkish and foreign actors. ISTAC Arbitration Rules came into force on 26 October 2015.
To begin with, an arbitration agreement can lead an arbitrator or an arbitral tribunal to settle the dispute as long as it is clear and simple. As a matter of fact, in practice, many of the problems in the course of arbitration arise from the fact that the arbitration agreement is obscure and complicated to understand. At this point, the content of the arbitration agreement must be drawn in the most careful way. For that matter, almost all institutional arbitration centers offer a model arbitration clause within their own institutional arbitration rules and make suggestions on the points for parties to agree upon when they conclude an arbitration agreement in such model arbitration clause [1]. Likewise, ISTAC included a model arbitration clause within their rules as well. In this study, the model arbitration clause for arbitration agreements proposed by ISTAC will be analyzed.
- ISTAC Model Arbitration Clause
“Any disputes arising out of or in connection with the present contract shall be finally settled through arbitration under the Istanbul Arbitration Centre Arbitration Rules.
The following provisions may be added to the model arbitration clause:
• The Emergency Arbitrator Rules shall (not) apply.
• The place of the arbitration shall be (City/ Country).
• The language of the arbitration shall be (...).
• The number of the arbitrators shall be (...).
• The law applicable to the merits of the dispute shall be (...)”.
- Content of the Arbitration
As the first sentence of the model arbitration clause refers to ‘ any disputes arising out of or in connection with the present contract (...)’ it can be inferred that the clarity of the arbitration agreement, which is a validity condition for an arbitration agreement, is intended to be provided by emphasizing the scope thereof. The clearer the borders of the scope of the arbitration agreement is, the quicker and more accurate the resolution of the dispute becomes. For instance, one of the most frequent issues in arbitration agreements concluded between parties arise from the statements such as ‘disputes between these parties’ which can cause an arbitration proceeding to come to a halt right at the beginning due to the matter of dispute is obscure and therefore arbitration intention is not clear. For this reason, parties should set the borders of the arbitration agreement in the clearest way possible to avoid any impediments to the validity of the arbitration agreement. It is advisable that in such a simple and yet important matter, parties should act with maximum care and draft the arbitration clause in compliance with the model clause.
- Place of Arbitration
Another point which the parties may determine in the arbitration agreement is the place of arbitration. The choice of the place of arbitration is of utmost importance due to its impacts on the arbitration procedure [2]. Cities such as London, Paris, and Zurich are frequently preferred as places of arbitration. One of the underlying factors of such preference is the applicable rules to arbitration in the place of arbitration [3]. The presence of developed arbitration legislation plays a crucial role in terms of implementation of suitable measures in emergency situations. Besides, the local courts’ experience on arbitration is essential in implementation and maintenance of arbitral awards. Apart from all these reasons, convenience of physical conditions of the place of arbitration are taken into account as well. ISTAC is an arbitration centre with the headquarters located in Istanbul. Istanbul is one of the major cities of the world that should not be overlooked in choosing the place of arbitration, not only for its location that combines Europe and Asia but also for its advanced infrastructure and easy accessibility.
- Language of Arbitration
Another point which may be stipulated in an arbitration agreement is the language of arbitration. In cases of international arbitration that includes foreign elements, it is seen that parties speak different languages. Determining a certain language is crucial for its soundness and simplicity so that there can be a consensus among the parties and the arbitrator or the arbitral tribunal during the proceedings. Determining a certain language of arbitration quickens the process of the evaluation of the evidences, which is quite compatible with the purpose of arbitration; and as a result, the parties will be relieved from the burden of translating the evidence, which is a rather time-consuming endeavor. Consequently, not only for a unity within arbitration proceedings but also for saving time and reducing the workload of proceedings, the language of arbitration must be determined.
- Number of Arbitrators
Another point for the parties to clarify in the arbitration agreement is the number of arbitrators in the arbitration process. Much as in practice, institutional arbitration centers appoint arbitrators according to the disputed financial amount, however, arbitration centers observe parties’ agreement on the number of arbitrators. It is stated in Art.13 of the ISTAC Rules that the parties are free to agree upon the number of arbitrators; in the case that parties do not agree upon any number, considering all the circumstances and conditions of the dispute, the Board shall decide if it will be resolved by a sole arbitrator or a tribunal with three arbitrators. In order to avoid an equality of votes, the number of arbitrators should always be an odd number.
- Law Applicable to the Merits of the Dispute
Another point which may be determined in the arbitration agreement according to the ISTAC model arbitration clause is the applicable law on merits. In international arbitration, as parties are from different jurisdictions, parties are advised to agree on the applicable law on the merits of the case in order to guide the arbitrators. Parties’ determination of the law applicable to the merits of the dispute is important for the requirement of the principle of procedural economy, as well as convenient arbitration proceedings in line with parties’ intentions and to avoid impediments at the enforcement stage.
- Conclusion
In conclusion, in order to avoid any kinds of drawbacks, the parties are advised to agree upon the mentioned matters. The author is in the opinion that as long as parties are attentive to the model clause provided in ISTAC Rules, an ideal arbitration agreement will be formed; and this will certainly lead to fast and effective arbitration proceedings.
[1] ICC Rules Art. 19 “The proceedings before the arbitral tribunal shall be governed by the Rules…”
VIAC Rules Art. 28 “The arbitral tribunal shall conduct the arbitration in accordance with the Vienna Rules...”
[3] Babur, Ezgi.; September, 2014.
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Will the Right to Legal Remedies Be Restricted by Mandatory Mediation? - An Examination Within the Framework of Court Decisions-
Att. Zeynep Tuncer
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In our country, it is generally accepted that mediation is a completely voluntary alternative dispute resolution method. The Law No. 6325 on Mediation in Civil Disputes (the “Law on Mediation”) mentions the same as following: “The parties are free to recourse to a mediator, to continue or finalize the process, or to cease such process.”
In close connection with that, the country’s agenda has been long focused on making mediation mandatory for certain labor disputes. Although some practitioners support mandatory mediation on the grounds that it will accelerate the process and mitigate the expenses, there are also some dissenting practitioners who consider that it will prevent parties from seeking assistance of the courts and thus restrict the right to legal remedies.
Before reaching a consensus on application of mandatory mediation, the Law on Labor Courts numbered 7036 (the “Law on Labor Courts”) providing for mandatory mediation for certain labor disputes has been published in the Official Gazette dated October 25, 2017 and numbered 30221 and the provisions on mandatory mediation entered into force on the 1st of January, 2018.
Following the entry into force of mandatory mediation, the claims that it will restrict the right to legal remedies have further flared up.
That being said, in order to evaluate whether such claims are legally relevant, it is important to understand the meaning of mandatory mediation in the first place, and then to examine within the framework of court decisions whether the right to legal remedies will be restricted by mandatory mediation.
- What is mandatory mediation?
Mandatory mediation is defined as follows in the Law on Labor Courts:
“It is a cause of action to recourse to a mediator regarding actions for damages or receivables of employees or employers and actions for re-employment grounded on the law or individual or collective employment agreements.”
As seen in the above text, instead of the term “mandatory”, the term “cause of action” is preferred in the Law on Labor Courts. A cause of action means the conditions required for the initiation of a lawsuit. Within this scope, filing an action without applying to mediation will not be possible for certain labor disputes specified in the Law on Labor Courts. This is why, in practice, reference is made to “mandatory mediation”, and not to “cause of action”.
Within this scope, if a lawsuit is filed without applying to mediation, the action will be rejected on procedural grounds. This is stipulated in the Law on Labor Courts as following: “In case it is understood that an action has been filed before having recourse to mediation, dismissal of the action without prejudice is ruled due to the absence of cause of action without any further procedure”
Therefore, from the entry into force of the provisions on mandatory mediation stated in the Law on Labor Courts, it is mandatory to apply to mediation before filing an action for the disputes based on claims for damages and receivables of employers or employees based on individual or collective employment agreements as well as claims for re-employment. As an exception, compensation claims with respect to pecuniary and non-pecuniary damages arising from occupational diseases or work accidents as well as declaratory actions, plea and recourse actions related to those are not subject to mandatory mediation.
However, it should be underlined that the Law on Labor Courts imposes no obligation on the parties to resolve the above-stated disputes through mediation, it just imposes obligation on the parties to go to mediation before filing an action before the court. In other words, persons who cannot resolve their disputes through mediation may then go to court, and seek resolution of their disputes by court.
In cases where there is no provision on mandatory mediation in the Law on Labor Courts, the provisions of the Law on Mediation will be applicable insofar as possible.
- How do the courts construe mandatory mediation?
Mandatory mediation has been applied for a long time and is still being applied in many jurisdictions. Having said that, similar claims that mandatory mediation restricts the freedom to legal remedies, which has been a hot topic among Turkish scholars, has also been on the agenda of the other countries in past and certain court decisions have been rendered in this respect.
Since the application of mandatory mediation has just commenced in Turkey, there is not any relevant given court judgment. However, upon the application made to the Constitutional Court for the annulment of some articles of the Law on Mediation, the Constitutional Court passed a decision that contains significant points, on 10th of July 2013 with no. 2012/94 E.–2013/94 K., which was then published in the Official Gazette dated 25th of January 2014.
In the light of the foregoing, some relevant court decisions given in Germany, Italy and Turkey are provided below.
- Decision of the Federal Constitutional Court of Germany[1]
One of the jurisdictions where mandatory mediation is available is the state of North-Rhine Westphalia, located in the north of Germany. In this state, it is not possible to file a lawsuit before the court without prior recourse to mediation for disputes below certain amounts, as per §10 of the Implementation Law, which has been adopted on the basis of §15 of the Introductory Act to Civil Procedure Law (Einführungsgesetz zur Zivilprozessordnung) which entered into force on 09.05.2000. However, the above-stated provision has paved the way for fierce debates and consequently the matter of mandatory mediation has been brought before the Federal Constitutional Court of Germany. The details of the case examined by the Federal Constitutional Court of Germany are stated below:
In 2001, the Rheinberg Court of First Instance of Germany has dismissed an application made within the scope of an action for damages on grounds that the parties did not apply to a mediator prior to appearing before the court. Following the dismissal of the lawsuit, the claimant has applied to the Second-Degree Court of Appeal. However, this application was also dismissed since the requirements for application to second degree appeal were not satisfied. Ultimately, the claimant has lodged its claim before the Federal Constitutional Court of Germany, claiming that its “effective judicial protection right” was violated.
The Federal Constitutional Court of Germany has pointed out that the justice can be delivered in two different ways. First, courts should be accessible, and secondly, the judicial protection that is granted should be effective. As per to the effective judicial protection, the Federal Constitutional Court of Germany underlined that the legislator may promote the resolution of disputes through conciliation for ensuring that disputes are swiftly resolved, in order to support legal sustainability or to relieve workload of state courts. However, besides the mandatory mediation, the Federal Constitutional Court of Germany emphasized that access to court should be always available in the following words: “…However, as a complementary, the way to obtain decision from the court should always be available”.
The Federal Constitutional Court of Germany also stated that “…essentially, in a state of law, it is worth giving priority to the resolution of a disputed matter through conciliation, in lieu of to a court decision…”.
For the reasons stated above, the Federal Constitutional Court of Germany dismissed the claim of the Claimant.
- Decision of the Court of Justice of the European Union[2]
Italy is also among the said jurisdictions where mandatory mediation is in force.
As per the Italian Legislative Decree No. 28/2010, in disputes arising out of insurance, banking or financial contracts, before filing a lawsuit, it is mandatory to recourse to mediation. This has been a topic of debate in Italy, and the matter has been brought before the Court of Justice of the European Union (the “Court of Justice”). The summary of the decision of the Court of Justice is as follows:
Two Italian citizens, Livio Menini and Maria Antonia Rampanelli, filed an action before the Verona District Court in Italy (Tribunale Ordinario di Verona) against the bank Banco Popolare, which sought repayment of a loan of €991,848.21. However, the district court dismissed the action, since, as per Italian law, they should have first applied to mediation. Upon the dismissal, the parties alleged that Italian law is not consistent with the European Union law, since there is no mandatory mediation regarding consumer matters in the European Union. In order to evaluate the parties’ claims, the district court asked the Court of Justice whether the Italian legislation is compliant with the European Union norms.
The Court of Justice, in its recent decision dated the 14th of June 2017, stated that the “voluntary mediation”, which is found within the European Union legislation, does not necessarily mean that the parties are free to recourse to mediation, but means the parties are free to determine procedural details of a mediation procedure at their own discretion and can terminate this process at any time without providing any reason. The Court of Justice also underlined that the most important point is that, after the mediation, the parties shall still be able to file a lawsuit before the court.
The Court of Justice finally pointed out that mandatory mediation is compliant with the “right to legal remedies” which exists in national legislations, under certain conditions. The main conditions are that mandatory mediation should not cause a substantial delay in applying to court, it should also not suspend the statute of limitations for the parties’ rights and lastly it should not give rise to higher legal costs and expenses.
- Decision of the Constitutional Court of the Republic of Turkey
As also stated above, there is not a court decision regarding mandatory mediation yet, since mandatory mediation has been recently adopted by the Committee on Justice of the Grand National Assembly of Turkey. However, following the application made before the Constitutional Court for the annulment of some articles of the Law on Mediation, important points have been underlined in the above-mentioned decision of the Constitutional Court.
The Constitutional Court pointed out that mandatory recourse to alternative dispute resolution methods does not preclude the right to claim legal remedies “as long as they are not ineffective and inconclusive methods established for the purposes of making people’s right to legal remedies impossible.”.
Furthermore, the Constitutional Court also underlined that the term “alternative” within the expression “alternative dispute resolution” cannot be interpreted as a method alternative to courts; on the contrary, the right to access to courts or other judicial remedies shall always be maintained, in parallel with the right to access to mediation, pursuant to the “principle of voluntariness” in mediation.
- Conclusion and Evaluation
In the light of the above-stated Court decisions, it is seen that that mandatory mediation does not restrict the right to claim legal remedies, in case of fulfilment of the following main conditions:
- The right to access to judicial system should always be available;
- Mandatory mediation should not cause a substantial delay in going to court;
- The parties should have the right to terminate the mediation process at any time, even without stating any reason;
- Statute of limitations for the parties’ rights should not continue during the mandatory mediation process; and
- Mandatory mediation should not give rise to higher legal costs and expenses for the parties.
When the above-stated conditions are evaluated within the framework of the Law on Mediation and the Law on Labor Courts, it can be seen that these conditions are fulfilled, since;
- Mandatory mediation is a cause of action, and if the cause of action is fulfilled, access to court is always available (the Law on Labor Courts, Art. 3).
- The mediation procedure is completely determined by the parties. If not, the mediator will carry out the mediation process in consideration of the procedures and principles required for prompt resolution of the dispute, the nature of the dispute, and the wills of the parties (the Law on Mediation, Art. 15). Therefore, the parties determine themselves the time period during which they will discuss their dispute under mediation.
- The parties can terminate the mediation process at any time and they are not obliged to state any reason for such termination [the Law on Mediation, Art. 17(1)(c)].
- The time spent from the beginning till the end of the mediation is not taken into account in the calculation of the prescriptions and statute of limitations. [the Law on Mediation, Art. 16(2)].
- Mandatory mediation does not give rise to higher legal costs and expenses for the parties, since, in case the parties fail to reach an agreement during the mandatory mediation, the fee for mediation negotiations which took less than two hours is paid by the Treasury. Unless otherwise agreed, fees of negotiations related to hours exceeding two hours are paid equally by the parties as per the Minimum Mediation Fee Tariffs [The Law on Labor Courts, Art. 3(14)]..
In the light of the above explanations, it can be noted that mandatory mediation stipulated in the Law on Labor Courts will not restrict the right to legal remedies.
[1] For the translation of the decision, see ERİŞİR E.: “Arabuluculuk Müessesesinin Anayasa’ya Uygunluğuna ve Devlet Yargısına Nazaran Öncelik Verilmeye Değer Olduğuna İlişkin 14.02.2007 tarihli Alman Federal Anayasa Mahkemesi Kararı”, DEÜHFD, V. 11, Special No. 2009, “Prof. Dr. Bilge Umar’a Armağan”, V. I, İzmir 2010, p. 225 et seq.
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ISTANBUL ARBITRATION CENTRE
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Esentepe Şişli İstanbul / Turkey
Phone: +90 850 622 50 30
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