Background

The constitution of an arbitral tribunal is one of the first steps in arbitration. Further, considering the serious consequences that it can have on a broad range of issues – from the start date of proceedings to the enforceability of the award – the constitution of an arbitral tribunal is one of the most important decisions in the arbitration procedure. As the proper constitution of a tribunal is essential for arbitration, all leading institutional rules and national laws set out detailed provisions in this regard.

In both domestic and international arbitrations in Turkey, parties are, in principle, free to choose their arbitrators. However, there are limits in this regard, including where the parties are of different nationalities.

Under the International Arbitration Law, which was largely inspired by the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration, while appointing either the sole arbitrator or the members of an arbitral tribunal, the courts will consider the parties' agreement and the independence and impartiality of arbitrators. Where the parties are of different nationalities and a sole arbitrator is to be appointed, the arbitrator cannot be of the same nationality as either party, unless otherwise agreed by the parties. If three members are to be appointed, two cannot be of the same nationality as the parties. The purpose of this restriction is to implement one of the basic objectives of international arbitration, which is to provide an internationally neutral means of resolving disputes between parties from different countries.

Almost all leading institutional rules contain similar restrictions on the nationality of sole and presiding arbitrators. Article 13/5 of the International Chamber of Commerce (ICC) Rules of Arbitration 2012 provides that, when the ICC Court selects a sole or presiding arbitrator, he or she will be of a different nationality than either of the parties. This provision imposes a direct prohibition against the institutional appointment of a sole or presiding arbitrator of the same nationality as one of the parties. Most other institutional rules – such as Article 6 of the London Court of International Arbitration Arbitration Rules 2014 and Article 17/6 of the Arbitration Institute of the Stockholm Chamber of Commerce's Arbitration Rules 2017 – adopt similar approaches to a sole or presiding arbitrator's nationality. On the other hand, some institutional rules omit any express nationality requirement with regard to sole and presiding arbitrators. For example, the Swiss Rules of International Arbitration 2012, the Arbitration Rules of the Singapore International Arbitration Centre 2016 and the China International Economic and Trade Arbitration Commission Rules 2015 impose no nationality-related restrictions for institutional appointments of arbitrators. In practice, even if not prohibited from doing so by institutional rules, leading arbitral institutions are likely to refrain from appointing a sole or presiding arbitrator with the same nationality as one of the parties, because doing so would violate the basic principle of international neutrality, particularly in the eyes of the foreign party.(1)

The selection of arbitrators is the starting point of arbitration proceedings and an irregularity regarding the nationality of an arbitrator may result in a challenge against the award. Under Article 15A/1(b) of the International Arbitration Law, an arbitral award may be set aside where the party making the application proves that the constitution of the arbitral tribunal was not in accordance with the parties' agreement or, failing such agreement, with the International Arbitration Law. Further, as Turkey is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, under Section V thereof, the enforcement of an arbitral award may be refused due to any irregularity in the tribunal's constitution.

Facts

In this respect, the 11th Civil Chamber of the Court of Appeals rendered a key arbitration-friendly decision on November 3 2016.(2) The Court of Appeals' decision is particularly important because it deals with important principles on the constitution of the tribunal and the nationality of arbitrators. The claimant – a German legal entity – filed a lawsuit before the competent first-instance court regarding enforcement of an ICC arbitration award against a Turkish party, claiming that none of the grounds for refusing enforcement under Section V/1 of the New York Convention were present. The defendant asserted that the enforcement of the award must be refused under Section V/1(d) of the New York Convention, as the sole arbitrator was from one of Switzerland's German-speaking cantons and the claimant was a German legal entity. The first-instance court surprisingly rejected the claimant's enforcement request, on the ground that the nationality of the sole arbitrator and the claimant was virtually the same. According to the first-instance court, as the sole arbitrator was from one of Switzerland's German-speaking cantons and the claimant was a German legal entity, the arbitral award violated the right to a fair trial and the principle of equality.

Decision

The Court of Appeals reversed the first-instance court's decision, emphasising certain fundamental principles regarding the nationality of arbitrators and the tribunal's constitution. The Court of Appeals held that the nationalities of the sole arbitrator and the claimant were not the same and, therefore, enforcement of the arbitral award could not be refused due to the sole arbitrator's nationality. This conclusion complies with the standards of leading arbitration institutions. For instance, the ICC Court defines an arbitrator's nationality through citizenship and the holding of a passport – as opposed to any other connections to a country, such as ethnic origin or language. Strong evidence must be presented to the court in order to prove a suspicion about the impartiality and independence of the arbitrator based on nationality. It seems plausible to suggest that this conclusion is consistent with the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration 2014, as it provides that the doubts must be in the mind of a "reasonable and informed third party",(3) essentially prescribing an objective standard of proof for assessing doubts regarding the independence and impartiality of arbitrators.

Comment

The International Arbitration Law and many leading arbitral institutions' rules contain restrictions on the nationality of sole and presiding arbitrators, where the parties are of different nationalities. As the nationality of the arbitrator may result in the setting aside or refusal of the award's enforcement, utmost care should be taken to refrain from appointing a sole or presiding arbitrator with the same nationality as one of the parties. The Court of Appeals' decision is encouraging, as it corrects the first-instance court's mistake on the assessment of the sole arbitrator's nationality and prescribes an objective standard of proof for assessing doubts with regard to the independence and impartiality of arbitrators.

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For further information on this topic please contact Okan Demirkan or Cansu Celik at Kolcuoglu Demirkan Koçakli Attorneys at Law by telephone (+90 212 355 9900) or email (odemirkan@kolcuoglu.av.tr or cfcelik@kolcuoglu.av.tr). The Kolcuoglu Demirkan Koçakli Attorneys at Law website can be accessed at www.kolcuoglu.av.tr.

Endnotes

(1) Gary Born, International Commercial Arbitration, Kluwer Law International 2014, 2nd Edition, p1737.

(2) Decision of the 11th Civil Chamber of the Court of Appeals, File 2015/11441, Decision 2016/8701, November 3 2016.

(3) IBA Guidelines on Conflicts of Interest 2014, General Standard 2(b).

Begüm Yigit assisted in the preparation of this update.