Procedural Timelines and Extension Mechanisms in Arbitration

Time Limits in Commercial Arbitration

In the commercial world, time is a resource as valuable as—sometimes even more valuable than—money. In arbitration proceedings, concluding the case within a specific timeframe is a crucial matter. Indeed, the swift resolution of disputes is among the primary reasons parties opt for arbitration. Regarding this, parties may agree on arbitration time limits among themselves, or they may regulate this issue by referring to the rules of the relevant arbitration institution.

The General Rule in Turkish Law

Under the Turkish Code of Civil Procedure (HMK), specifically Article 427, the general rule is that the sole arbitrator or the arbitral tribunal must render a decision on the merits within one year. This period commences from the appointment of the arbitrator in sole arbitrator cases, or from the date of the first minutes of the meeting in cases with a panel of arbitrators. However, it is widely accepted that this rule is not mandatory, and parties are free to agree otherwise.

The Rule in International Arbitration

A similar rule exists in international arbitration. Article 10(B) of the International Arbitration Law (MTK) regulates the arbitration period and how it can be extended:

*"B) Unless otherwise agreed by the parties, the decision on the merits shall be rendered by the sole arbitrator or the arbitral tribunal within one year from the date of the appointment of the sole arbitrator or the date of the first minutes of the meeting of the arbitral tribunal.

The arbitration period may be extended by the agreement of the parties; if they cannot agree, it may be extended by the civil court of first instance upon the application of one of the parties. If the application is rejected, the arbitration proceedings shall terminate at the end of the arbitration period. The decision of the court is final."*

As understood from this provision, the statutory arbitration period is one year and can be extended by the courts. However, just like the HMK provision, this article states that "unless otherwise agreed by the parties." This means parties can specify a duration in their contract, or they can stipulate that time extensions will be conducted in accordance with the rules of the arbitration institution referred to in the arbitration agreement.

The Stance of the Supreme Court of Cassation: Institutional Rules Prevail

A recent decision by the Turkish Supreme Court (supports this interpretation. The High Court stated that regarding time extensions, the International Chamber of Commerce (ICC) rules, to which the parties referred for procedural rules, shall prevail. In such cases, requests for time extensions accepted or rejected by local courts have no effect on the validity of the arbitration.

CASE ANALYSIS: SUPREME COURT – 11th CIVIL CHAMBER

File No: 2021/4695 Decision No: 2022/6134 Date: 21.09.2022

Summary of the Dispute: The case concerns a request for the cancellation of an arbitral award rendered by the ICC Arbitral Tribunal. The Regional Court of Justice (acting as the Court of First Instance) initially accepted the case and cancelled the award, reasoning that the award was rendered after the expiration of the arbitration period. The court argued that the local commercial court had rejected the extension request, and thus the tribunal's authority had ceased. The defendants appealed this decision.

The Defense: The attorneys for the defendants argued that the extension of the arbitration period was subject to ICC Rules. Therefore, the decision of the Istanbul 1st Commercial Court of First Instance was ineffective and bore no consequence for this case. They emphasized that the Arbitral Award was rendered within the time granted by the ICC Court of Arbitration. They further argued that Article 427 of the HMK is not a mandatory provision but a default rule, and the ICC Court had validly extended the time until December 31, 2020, with the award being rendered on December 14, 2020.

The Supreme Court ’s Reasoning: The High Court examined the dispute under the 11th Section of the HMK (Civil Procedure Code). It highlighted that Article 424 allows parties to freely determine the procedural rules, provided they do not violate mandatory provisions. Furthermore, Article 427 regarding the one-year time limit begins with the phrase "Unless otherwise agreed by the parties..." indicating that this is not a mandatory provision.

The Court concluded:

"In this case, subject to the mandatory provisions of the HMK in disputes not involving a foreign element, parties may freely decide on the arbitration rules to be applied... According to the arbitration clause in the contract and the Terms of Reference, the arbitration case is to be conducted pursuant to ICC Arbitration Rules... The arbitration period and its extension shall also be subject to the same rules."

The Verdict: The Court noted that although the local court rejected the extension, the ICC Court had extended the period 18 times in accordance with its own rules (Article 31). Since the ICC Court extended the deadline to 31.12.2020 and the decision was rendered on 14.12.2020, the award was timely. Consequently, the Court of Cassation OVERTURNED the lower court's decision to cancel the award, ruling in favor of the defendants.

Our Commentary

We agree with the decision of the High Court cited above. It correctly establishes the supremacy of institutional rules (like the ICC) over default statutory time limits when parties have agreed to them.

However, while the result is correct, we observe a procedural gap in the reasoning: the decision does not explicitly determine whether the arbitration involved a "foreign element". If a foreign element were present, the reasoning should have referenced the relevant provisions of the International Arbitration Law (MTK) rather than solely relying on the Code of Civil Procedure (HMK). Nevertheless, the outcome reinforces the principle of party autonomy in arbitration.