Constitutional Court Decided That Lack of Jurisdiction Decision Rendered due to Arbitration Agreement Does Not Violate the Right to Property
Introduction
It is well known that the existence of a valid arbitration agreement in dispute resolution eliminates the jurisdiction of the courts. If, despite the existence of a valid arbitration agreement, one of the parties takes the dispute to court and the opponent party raises objection to the jurisdiction, the court must decide that it lacks jurisdiction.
This issue, which is frequently discussed before the courts of law, is associated with the right to the property. Recently, this right became the subject of a Constitutional Court decision. The applicant filed an individual application with the Constitutional Court, claiming that his right to recovery was abolished as a result of the lengthy trial before Turkish court and the court’s lack of jurisdiction decision rendered due to the existence of a valid arbitration agreement. In its decision on application number 2018/5832 dated 08.08.2021 (“Decision”), the Constitutional Court unanimously decided that the right of property was not violated. The decision was published in the Official Gazette dated 07.09.2021 and numbered 31591.
The Dispute Subject to the Decision
The dispute arose from damage to the cargo carried in maritime transport. The seller had agreed with the carrier for the transport of exported goods to a foreign port. After arrival, it was observed that the goods had been damaged by sea water. The consignee notified the carrier of the damage on the same date. The cost of the damaged goods was paid to the shipper (seller) within the scope of the insurance policy.
As a successor to the rights of the shipper, the insurance company initiated enforcement proceedings against the carrier, and the proceedings were stopped upon the objection of the carrier. Thereupon, the insurance company filed a lawsuit for the annulment of the objection against the carrier before the Istanbul 17th Commercial Court of First Instance (“Court”) , which acts as a specialized maritime court. The defendant carrier claimed that the Turkish courts had no jurisdiction to resolve the dispute, as there was a reference to the arbitration clause in the charter party (contract of carriage) in the bill of lading, which is binding in terms of the legal relationship between the parties. The objection of the defendant was rejected by the Court at the first hearing dated 29.01.2013. While deciding to reject the arbitration objection, the Court emphasized that the reference to the contract of carriage in the bill of lading related only to the cost of carriage and did not cover the arbitration clause. As a result of the trial, the Court decided to accept the claim on 25.06.2015.
On appeal, the Court of Cassation concluded on 12.01.2017 that the Turkish courts has no jurisdiction to resolve the dispute and overturned the trial court's decision. The Court of Cassation stated that the arbitration clause in the contract of carriage was included in the bill of lading by reference and was valid, and concluded that the dispute should be resolved through arbitration. They based their decision on the wording on the front of the bill of lading stating that it was "to be used with the charter party," as well as wording on the reverse side stating that “all the terms and conditions, rights and exceptions of the charter party whose date is stated on the reverse of the bill of lading, including the applicable law and arbitration clause, are thus valid.” Complying with the Court of Cassation’s annulment decision, the Istanbul 17th Commercial Court of First Instance decided to dismiss the case on 25.05.2017 due to lack of jurisdiction. After examining the decision of the Court on lack of jurisdiction upon the appeal of the plaintiff, the Court of Cassation upheld the decision of lack of jurisdiction on 04.12.2017.
Allegations Regarding the Violation of Rights
In his application to the Constitutional Court, the plaintiff claimed that the decision on lack of jurisdiction contradicted the jurisprudence of the Court of Cassation. In addition, the applicant stated that at the hearing on 29.01.2013, the objection to arbitration was rejected. However, it was accepted and a decision on the lack of jurisdiction was entered approximately seven years after the damage occurred in 2010, which meant that his claim was time-barred according to English Law. The plaintiff claimed that the right to remedy the damage was taken away due to not resorting to arbitration in due time, and claimed that the right to seek justice, the right to a fair trial, and property rights were violated.
Evaluation
The Constitutional Court held that all of the complaints raised in this case must be examined within the scope of the right to property. In this respect, firstly, it emphasized that the Constitutional Court cannot interfere with the discretion of courts unless a court decides which is obviously arbitrary or there is an obvious error of discretion. Examining the relevant case, the Constitutional Court concluded that the assessment made by the Court regarding the validity of the arbitration clause was not arbitrary and did not contain an obvious error of discretion.
Regarding the applicant's claim that due to the decision on the lack of jurisdiction rendered nearly seven years after the damage occurred the claim was time-barred under English law and he lost the right to claim the damage, the Constitutional Court concluded that the claim that his right to property had been violated was groundless. According to the Constitutional Court, the applicant was aware of the content of the contracts drawn up between the parties and the accompanying documents. Instead of resorting to arbitration in compliance with the foreign arbitration clause in the contract, the applicant brought an action in the Turkish courts. Therefore, the applicant was in a position to foresee that he might face an arbitration objection in the proceedings before the courts and that the courts might issue a decision on lack of jurisdiction.
In addition, the Constitutional Court explained that it is not generally possible for the Constitutional Court to decide whether a receivable in dispute is time-barred under the law of another country, and that the only reason for the impossibility of collection in this case was the Court’s decision on the lack of jurisdiction, rendered in a very long time. The Court further noted that the applicant had the opportunity to prove that the claim is time barred by resorting to arbitration but the applicant failed to prove it by not resorting to arbitration. As a result, the Constitutional Court concluded that the applicant, who was in a position to foresee that a decision on the lack of jurisdiction could be rendered before the Turkish courts due to the arbitration clause in the contract, could not sufficiently demonstrate that the collection of his receivables became impossible due to the Court’s decision on lack of jurisdiction rendered in a very long time, and that there had been no violation of a property right.
Conclusion
With its decision, the Constitutional Court points out that the responsibility is on the parties in terms of acting in accordance with the provisions determined in the contract or included in the contract by reference and foreseeing the risks. The decision is also noteworthy in that it evaluates and discusses the issues of arbitration agreements and the jurisdiction of the court -- issues which are frequently discussed before civil courts -- within the framework of fundamental rights regulated in the Constitution.
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