Possible Problems That May Be Encountered in the Context of Reservations Concerned in the New York Convention

I. INTRODUCTION TO THE ARBITRATION A. MEANING AND CONDITIONS

Arbitration can be defined as the agreement of the parties regarding the final and binding settlement of disputes arising or that may arise between the parties, instead of the court, by means of arbitrators, provided that the law allows for resolution by arbitration. There are two basic conditions for resolving disputes through arbitration. The first is that the dispute is eligible for arbitration, and the second is that the parties have agreed that disputes will be resolved by arbitration¹. As long as these conditions are met, an arbitration agreement can be made between the parties. Due to the dispute between the parties, a way to apply to this arbitration trial is opened.

B. ADVANTAGES OF ARBITRATION 2

Unless otherwise agreed, some other dispute resolution methods, such as mediation, conciliation, negotiation, which can be used in the resolution of international commercial disputes, will not bind the parties. whereas arbitral decisions are binding decisions on the parties, just like court decisions.

International commercial arbitration is also more advantageous in terms of enforcement of arbitral decisions than the state judiciary. The fact that referee decisions have been facilitated compared to enforcement thanks to international contracts is one of the most important reasons for being preferred in international commercial practice. In many countries, the enforcement of foreign arbitral decisions and enforcement of foreign court decisions are regulated by different provisions. As an example, for enforcement of a foreign court decision as it is known in Turkey with the countries where the foreign court must decide the realization of reciprocity in Turkey. Whereas, allowing for any enforcement of foreign court decisions in Turkey, as being a party to multilateral agreements, it has entered into agreements for the enforcement of foreign court decisions with very limited number of countries. However, Turkey is a party to the 1958 New York Convention on the enforcement of arbitral decisions, arbitration decisions, enforcement can be in almost all countries of the world, including Turkey.

Another advantage of international arbitration is that it allows the dispute to be resolved by experts.³ Thanks to the freedom of will granted to the parties, the parties can choose the rules of procedure, the language of trial, the country and the referees to be applied differently from the state judiciary.⁴ The resolution of the dispute in confidentiality and the publication of the arbitral decisions, as a rule, are preferred for institutions and organizations in the field of international trade.

II. RECOGNITION and ENFORCEMENT OF FOREIGN ARBITRAL DECISIONS

The execution of a foreign judicial decision by activating the state’s enforcement forces with their help is only possible with an enforcement decision from the state courts. The state courts for which enforcement is requested will reach a conclusion by examining whether there are enforcement conditions in that order. The New York Convention of 1958 is the most important and effective regulation in the international arena on the recognition and enforcement of international arbitral decisions. Concepts of recognition and enforcement are different from each other in terms of content and results. Recognition means that the final judgment of a foreign arbitrator’s decision has been accepted by the state from which the recognition was made, regardless of its ability to enforce. Enforcement, on the other hand, implies that the decision of the foreign arbitrator acquires enforcement ability in the state country where the enforcement process takes place.

In order to be able to talk about recognition and enforcement, a referee decision must first be present. For this reason, expert reports, evaluations or expertise that are not referee decisions cannot be subject to recognition and enforcement. Whether a decision is an arbitrator’s decision will be determined by the law of the country in which the arbitrator’s decision was made.

A. RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL DECISIONS ACCORDING TO NEW YORK CONVENTION

Today, the recognition and enforcement of arbitral awards are accepted as a requirement of international commercial and economic cooperation, provided that it complies with the principles of minimal justice. Indeed, international trade is full of risks. Potential conflicts are at the forefront of these risks. Of course, the concern that the decisions made based on the conflicts cannot be enforced will increase the cost of international trade negatively.⁵ Therefore; the possibilities for recognition and enforcement of foreign arbitrator decisions indirectly affect the development and spread of international trade. For this reason, many countries have become a party to the 1958 New York Convention prepared by the United Nations. The provisions of the New York Convention have established minimum principles of justice to be followed in the field of international commercial arbitration. The provisions governing the recognition and enforcement of foreign arbitral awards also point to the principles to be taken into consideration in the process of international arbitration, as they represent minimum mandatory principles in the field of international commercial arbitration. For this reason, it will be appropriate for the arbitral courts to make decisions based on the minimum standards of national and international enforcement regimes. The New York Convention regulates the recognition and enforcement of foreign arbitral awards. As such, the provisions of the Agreement are procedural rules in nature. An arbitration procedure ends with a decision by the arbitrators.⁶ The milestone of the decision made by the arbitrators is completely separate from the arbitration procedure in courts.⁷

1. Reservation About the Purview of the New York Convention

Under the New York Convention, an arbitrator’s decision is counted in two cases. Firstly, Arbitral decisions are made outside the state country where the enforcement request is made. Secondly, decisions of the arbitrator, who are considered foreign in accordance with the law of enforcement state, although they are issued in the state country where the request is made.⁸ As a rule, the Convention covers enforcement of all foreign arbitral awards without being subject to a restriction in terms of subject or location. Countries that are parties of the New York Convention generally made reservations to the first article when signing the contract. This provision, which is associated with the reciprocity requirement, deals with the recognition and enforcement of arbitral awards, even if it is not a party to the agreement. The first article of the New York Convention is as follows: “ 1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. 2. The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted. 3. When signing, ratifying or acceding to this Convention, or notifying extension under article X hereof, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.”⁹ According to the provision of Article 1, which explains the field of application of the New York Convention on the subject, the Agreement covers “arbitral decisions made in a country other than the country of enforcement.” Accordingly, judges made in any foreign country, whether or not a party to the agreement, are included in the scope of the Convention. However, in article 1/3, it is accepted that states can only limit the scope of the Convention to the arbitral decision made in the States Parties during the approval. Some States Parties have made reservations to this article and accepted it. therefore, the New York Convention will apply to the recognition and enforcement of arbitral awards made only in the states that are parties to the treaty in these countries. this means that the agreement will apply geographically only to arbitral decisions made in the contracting countries. 148 countries are parties of the convention, but more than seventy-five percent of these countries like Afghanistan, Algeria, Argentina, Armenia, Bahrain, Barbados, Belgium, Bosnia and Herzegovina, Bulgaria, China, Cuba, Denmark, France, Germany, Greece, Hungary, Iran, Japan, Malaysia, Turkey have made reservations for the first article. These Countries became a party to the Convention by making reservations, only foreign arbitral decisions made in a state country that is a party to the Convention can be enforced. It states that on the basis of reciprocity, each state can declare that the provisions of the contract will apply only to the recognition and enforcement of arbitral decisions made on the territory of another contracting state. Certain countries have also ratified the New York Convention with the reciprocity reservation stated in this article. For this reason, the New York Convention applies only to the recognition and enforcement of arbitral awards made in other countries in these countries.

It should also be discussed that this reservation may be a problem. It raises the question of how the recognition and enforcement of arbitral awards made in a country that is not a party of the New York Convention. In order to prevent any problems, the New York Convention was organized in a general way and included the decisions of non-party countries. However, when the reservations were examined, the reservations made by most of the countries limited the scope of the New York Convention. According to the doctrine views, two main problems can be encountered. At first, the legal and natural person of the state parties that take the arbitral award decision in a foreign country that is not party of the Convention. Secondly, Recognition and enforcement are restrictions on what the subject of the decisions will be.¹⁰ In addition, in accordance with the third paragraph of the first article of the 1958 New York Convention, some countries will be applied only among the commercial disputes. The New York Convention is applicable only to arbitral decisions made regarding disputes arising from commercial transactions and relationships.¹¹ States parties have made reservations on two issues, mostly. What these reservations are, what they are put on and the possible problems that they may create will be discussed below.

a. Decisions Taken By Non-Party Countries According to the reciprocity principle, reservations were mentioned. this reciprocity is a geographical reciprocity and gives the possibility to limit it to the arbitral awards made by the States parties in terms of the scope of application of this Convention. In accordance with the principle of reciprocity, if the parties to the arbitral proceedings are not parties to the New York Convention, it is necessary to examine whether there is a bilateral contract for these countries, which includes the recognition and enforcement of arbitral awards. The ease of implementation of the existing New York Convention will be replaced by the existence of the bilateral agreement about recognition and enforcement of foreign arbitral awards. If there are bilateral contracts, recognition and enforcement of the arbitrator’s decision will still be possible. Otherwise, this recognition and enforcement process will become more complicated and the decisions will be subjected to the regulations of the country’s national law. Recognition and enforcement provisions regulated in national laws can be more selective and difficult to implement. In this case, the recognition and enforcement of the arbitral decisions taken in the non-party country may depend on strict procedural rules. On the other hand, the decisions of the arbitrator, whose recognition and enforcement will take place in the countries that are parties to the New York Convention, will only take place effortlessly in the international regulation, depending on the Articles of the Convention. Moreover, even if it covers the decisions of arbitrators in nonparty countries, the value of coverage will decrease as a result of reservations, as the third paragraph of the first article has lost its applicability.¹² There are two reasons for this selectivity of the countries that can be interpreted. These countries do not want to make concessions from the independence and regulations of their national laws, but also that the counter country can make concessions as a contracting party from their own national procedural rules, even if they will make concessions. because a country’s national judicial independence is always a priority for that country.

Only international agreements gain value, equivalent to national laws. Realization of the decision and recognition and enforcement of the decision taken in a country that is not a party to international agreements may bring the independence of the national judiciary to a level that can negatively affect or even destroy it.

When all these comments are evaluated, it would perhaps not make it possible for the reservations made by the parties to the New York Convention to cause problems in recognition and enforcement of arbitral awards made in foreign countries. it will require the parties of the dispute to pay a price again, perhaps to renew the trial. This will give a negative result in terms of economic convenience and the short duration of the trial, which is one of the preferred reasons for the arbitral proceedings. The fact that the recognition and enforcement of the preferred arbitration is not possible due to the conclusion of it in a short time or it is due to strict conditions will prolong the process. In addition, when the enforcement of recognition does not occur, the costs of trials for another decision to be taken in the country of the party will also require the parties of the dispute to make an economic repayment. When the reasons for the reservations of the parties are examined, national judicial independence comes to the fore. in this case, it will not make any difference whether or not states parties are party to the New York Convention, where it is possible to recognize and enforce arbitral decisions made within their body without being a party to the New York Convention.

b. Subjects of Arbitral Awards and Disputes In cases requiring recognition and enforcement of arbitration decisions in another country, one of the reservations placed in the New York Convention concerns the subject of these arbitration proceedings. The reservation on this matter is that the subject of these arbitral proceedings is of a commercial nature only. The reservation made in the convention is as follows: “This State will apply the Convention only to differences arising out of legal relationships, whether contractual or not, that are considered commercial under the national law.”¹³ This reservation causes two main problems; recognition and enforcement will not be possible as a result of resolving a dispute that is about individuals with a decision taken by the referees. Secondly, the change in the definition of commercial qualification between countries. Commercial qualification is accepted as defined in the internal laws of the country where recognition and enforcement will take place. This reservation, put in the convention, becomes complicated as the definition of commercial qualification changes from country to country. The fact that the arbitral awards in a country are regarded as a commercial qualification in that country will not be sufficient for the recognition and enforcement process to be realized, but will also be subject to the domestic law regulations of the country where the transaction will take place.

If an example is given from the countries that put this reservation in the New York Convention; Afghanistan, Algeria, Argentina, Armenia, Belgium, China, Cuba, Denmark, Greece, Turkey, Hungary, Malaysia, Morocco, Netherlands… In Turkey, commercial qualification is explained as it is defined in the Turkish Commercial Code. According to this law, all the transactions and acts related to a business enterprise with the issues regulated in this Law are from commercial affairs.¹⁴ In Greece, Greek commercial law mainly takes the example of the French commercial law system, which envisages the various acts to be explicitly considered as commercial activity. This includes, for example, the purchase and sale of goods or the provision of services, industrial trade, the transport industry, warehousing, banking, insurance, etc. situations are included. When the examples given are examined, the scope of a commercial quality defined according to Turkish Law covers the law. However, transactions that are considered commercial qualities in Greek Law can be considered. An arbitrator’s decision taken under Turkish law must be one of the activities listed in Greek Law to be recognized in Greece.¹⁵ This will create an impressive reason for the reservations regarding the validity of the arbitration proceedings that the parties to the dispute have considered within the scope of the commercial nature. The issue that needs to be addressed here is that countries do not want to be a party to a Convention that will affect the independence of their national law. Each country will accept the recognition and enforcement of the transactions defined by its own law. It will be an attempt to interfere with the national laws of these countries to fully accept the Convention without any borders.

Another issue is that the arbitral proceedings on personal relations will not be recognized in terms of countries making reservations to the New York Convention.¹⁶ For example, it will not be possible to recognize and enforce an arbitrator’s decision, which addresses a dispute on real persons, as one of the countries that put this reservation. The acceptance of the internationally accepted New York Convention and the commercial qualification reservation introduced both protect the domestic law of the parties and facilitate legal and commercial affairs as a party of a highly internationally accepted convention. The fact that an international convention will be included in the domestic law of the countries and is so independent has caused the countries to make reservations. These countries also kept the validity of the contract limited in their law.