Action for Annulment of Objection before Arbitration
Introduction
Action for annulment of objection is regulated under Article 67 of the Bankruptcy and Enforcement Law No. 2004 (“Law No. 2004”). According to this Article, “The creditor whose execution proceeding is interrupted by the debtor’s objection may file an action for annulment of objection within one year as of the receipt of such objection and may ask the court to examine the case under general rules of law.” The main purpose of such action is to continue the execution proceedings that have been interrupted by the debtor’s objection. Since this action for annulment of objection will be heard under the general rules of law, the decision rendered after such adjudication shall be deemed final and binding in terms of substantive law. That being said, scholars and the court decisions continue to debate whether this action for annulment of objection is to be heard before an arbitrator or an arbitral tribunal.
Scholarly Opinions and Jurisprudence on Arbitral Tribunals Hearing Action for Annulment of Objection
Arbitration agreement is an agreement where real or legal persons leave the arbitrator or arbitral tribunal to settle their existing or future disputes that are not related to the public order[1]. The parties may decide freely on the rules applicable to the procedure and merits of the dispute in the most suitable manner for them, and depending on the nature of the dispute itself. When the parties, however, show intent to leave arbitrators to settle these disputes, does this mean that they have opted out from all possible remedies that states offer under their jurisdictional powers?
There is no explicit provision under Law No. 2004, former Code of Civil Procedure, Code of Civil Procedure in effect, and International Arbitration Act (“IAA”) as to how an arbitration agreement might affect the execution proceedings, particularly an execution proceeding without judgment, which is a proceeding exclusive to the Turkish and Swiss legal systems[2]. There is also no unified opinion amongst scholars and chambers of the Court of Cassation.
The scholars who suggest that arbitral tribunals are not entitled to hear an action for annulment of objection base their opinions on the following:
- Action for annulment of objection is a declaratory judgment[3] concerning enforcement law, and its purpose is to solely repeal the objection and continue with the execution proceedings. Therefore, this action cannot be heard before an arbitral tribunal.
- It is not logical to assume that the arbitrators can render final decisions, which are binding on the execution offices, where it is explicitly stipulated under Article 6/2 of the IAA that the arbitrators cannot bind the execution offices with their provisional attachment decisions[4].
- When the parties agree upon resolving their disputes before an arbitral tribunal by excluding the state involving, it should not just exclude the courts, but should exclude state’s judicial organization in general. Execution offices are also part of the state’s judicial organization and thus, initiating an execution proceeding, rather than requesting for arbitration is contrary to the arbitration agreement[5].
Scholars who suggest that an action for annulment of objection can be heard before an arbitral tribunal assert the following reasons:
- The inference suggesting that Article 6/2 of the IAA is an obstacle for arbitral tribunals to hear an action for annulment of objection is not accurate when the arbitrators are, in fact, competent to bind the execution offices with their final arbitral awards[6].
- Parties may initiate execution proceedings without judgment since these proceedings are not part of the court’s adjudication process[7].
- The legal benefit of the parties is not suffered when the arbitrators hear the action for annulment of objection or rule on bad faith compensation[8].
Court of Cassation also held different decisions on this matter:
On 14 December 2000, the 19th Chamber of the Court of Cassation held in its decision No. 2000/5610 E. – 2000/8669 K. that the action for annulment of objection cannot be heard by the arbitrators, as follows:
“The defendant argues that the plaintiff cannot initiate an execution proceeding without judgment where they have a binding agreement stipulating that all disputes will be resolved by arbitration. However, in such a case, the plaintiff cannot ask for an annulment of objection from the arbitrators. Taking the principle of procedural economy into the consideration, it should be possible for the arbitral tribunal to see this dispute as a personal claim to collect debt under the general rules of law.”
However, the 15th Chamber of the Court of Cassation held on 3 April 2008 that arbitrators and arbitral tribunals are entitled to hear an action for annulment of objection, in its decision of 2008/262 E. – 2006/2138 K.:
“The arbitral tribunal decided that they are not competent to hear this case as an action for annulment of objection and to decide on bad faith compensation and therefore, handled the case before them as a personal claim to collect debt. According to the continuous practice of our Chamber, arbitrators are competent to hear an action for annulment of objection and, accordingly, rule in favor of bad faith compensation. Therefore, the arbitral tribunal erred in handling this case as a personal claim.”
Conclusion
There is no explicit regulation as to how the existence of a valid arbitration agreement would affect an execution proceeding without judgment. There is also no unified opinion amongst scholars and chambers of the Court of Cassation. While some scholars and court decisions suggest that it is possible to handle an action for annulment of objection at arbitration, others assert that arbitrators are not competent to decide on this particular matter. It is important for the Court of Cassation to issue a unified opinion, since this issue has direct impact on the legal practice in Turkey.
[1] Decision of General Assembly on the Unification of Judgments of 1993/4 E. 1994/1 K., 28.01.1994 www.kazanci.com (Access date: December 2019).
[2] Yılmaz, Ejder: Tahkimde İtirazın İptali Davası ve Tahkime Elverişlilik Kuralı, p. 540, referring to Kuru, Baki: Hukuk Muhakemeleri Usulü, V. 6, İstanbul 2001, p. 5981, fn. 91.
[3] Çağa, Tahir: Ödeme Emrine İtirazın İptaline Dair, Batider 1976/VIII/3, p. 21-31; Muşul, Timuçin: İcra ve İflas Hukuku Esasları, 5. Bası, Ankara 2015, p. 254
[4] Yeşilırmak, Ali: Geçerli Bir Tahkim Anlaşmasının Varlığına Rağmen Genel Haciz Yoluyla Takip Yapılabilir mi?, Türkiye Barolar Birliği Dergisi, 2011 (96), p. 219.
[5] Yılmaz, p. 540-541.
[6] Yeşilırmak, p. 220.
[7] Kuru, p. 5980; Kuru, Baki: İcra ve İflâs Hukuku El Kitabı, Ankara, 2013, p. 253-254; Pekcanıtez/Atalay/Sungurtekin Özkan/Özekes: İcra ve İflâs Hukuku, Ankara, 2012, p. 199-200; Yeşilırmak, p. 225; Özkan, Yönel: İcra İflâs Hukukunda İtirazın İptali Davası, Ankara, 2004, p. 121.
[8] Yeşilırmak, p. 219.
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