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The Impact of Bankruptcy Proceedings on the Arbitration Clause



Jurisdiction is a power of the state that is exercised through its courts. However, parties to a legal relationship may, under certain conditions, choose to submit the resolution of disputes to natural persons called arbitrators rather than to the state's jurisdiction through a mutual agreement.

According to Article 412 of the Turkish Code of Civil Procedure[1] ("CCP"): “an arbitration agreement is the agreement of the parties to leave the resolution of all or part of the disputes that have arisen or may arise from a contractual or non-contractual legal relationship to the arbitrator or arbitral tribunal.” An arbitration agreement may be a separate agreement or a clause within the articles of association.

In the event of a valid arbitration agreement, arbitration is mandatory, unless the parties agree to the contrary following the occurrence of a dispute or at a later time after the execution of the arbitration agreement. Should one of the parties file a lawsuit in court in spite of the arbitration clause, the defendant may raise a "preliminary objection" to arbitration and obtain dismissal of the lawsuit on procedural grounds (Articles 116 and 413 of the CCP). However, if the preliminary objection is not raised promptly, the court application of either party shall be deemed an invitation to amend the arbitration clause. Failure to raise an objection will be deemed acceptance, allowing the court to continue hearing the dispute.

To be valid, an arbitration clause must satisfy certain requirements. As stated in Article 412 of the CCP, the arbitration clause must be in writing to be valid. The number of cases specified in the aforementioned article is an exemplification intended to ensure the requirement of a written form. In addition to the formal requirements, the validity of an arbitration agreement depends on other conditions; namely, (i) the mutual intent to arbitrate, (ii) the definite intent to arbitrate, and (iii) the arbitrability of the subject matter in dispute. The mutual intent to arbitrate refers to the parties' shared desire to resolve disputes arising from the underlying legal relationship before an arbitrator or arbitral tribunal in accordance with the procedure outlined in the arbitration clause. A definite intent to arbitrate means that the parties only wish to resolve disputes arising from the underlying relationship between them through an arbitrator or arbitral tribunal. For instance, if the arbitration clause states that "the dispute between the parties shall be resolved through arbitration or trial in a court of law", the validity of the arbitration clause cannot be confirmed. Finally, a valid arbitration clause requires a dispute over a subject matter that the parties can freely dispose of, which is referred to as "arbitrability." According to Article 408 of the CCP, "Disputes arising from rights attached to real properties and matters on which the parties may not freely act are not eligible for arbitration." Conversely, it is generally accepted that matters of public order, such as those related to paternity, are not arbitrable.[2]

Disputes arising within the scope of the underlying dispute subject to an arbitration clause that satisfies the above-mentioned conditions may be heard by an arbitrator/arbitral tribunal in accordance with the procedure outlined in the arbitration clause.


Bankruptcy is a legal proceeding aimed at satisfying all known creditors by liquidating all the goods, rights, and receivables (assets) included in the bankruptcy estate (Art. 184) of a debtor (bankrupt) who has been declared by the commercial court within the framework of certain procedures by means of enforcement due to failure to pay their debts.[3]

A bankruptcy petition can be filed directly or through bankruptcy proceedings.

When a bankruptcy claim is filed through bankruptcy proceedings, a bankruptcy payment order is sent to the debtor. If the debtor fails to pay or object within the required period, the creditor may file a lawsuit requesting the bankruptcy of the debtor at the commercial court of the first instance.

However, in limited circumstances, as provided for by law, a non-prosecution (direct bankruptcy) claim may be filed upon the request of both the creditor and the debtor.

Can the debtor be declared bankrupt despite the existence of an arbitration clause in the contract?

As explained hereinabove, the parties may only submit to arbitration in disputes over matters that they can freely dispose of. It is uncontroversial that bankruptcy is an act of public order.[4] Therefore, requesting a judgment of bankruptcy of the debtor in the arbitration proceedings or enforcing such an arbitral award would not be possible.

Although it is generally accepted that, in cases where there is a valid arbitration clause, the receivable can be claimed through arbitration proceedings, the initiation of execution/bankruptcy proceedings for the collection of the receivable without a judgment is controversial in accordance with the decisions of the Court of Cassation. In this regard, it is also disputed whether the case should be heard before an arbitrator or a court in cases where there is an objection raised by the debtor or bankruptcy proceedings to determine the existence of a receivable.

An arbitration proceeding before the Court of Arbitration of the International Chamber of Commerce rendered an award in a case where a counterclaim for the annulment of an objection had been filed, which was not arbitrable. In the lawsuit filed for the annulment of the award, the court of first instance dismissed the case, stating that there was no legal regulation prohibiting the request for annulment of the objection in arbitration proceedings, and this decision was upheld by a Court of Cassation ruling.[5] In another Court of Cassation decision, it was stated that the parties cannot unilaterally waive the arbitration clause and initiate enforcement proceedings after agreeing on the arbitration clause.[6] Since there is no established Court of Cassation practice on this matter yet, it is essential to eliminate this contradiction with a decision on the unification of conflicting judgements.

Although there is no contradiction regarding the rendering of a bankruptcy decision in terms of bankruptcy proceedings, there are different opinions regarding the determination of the existence of the receivable in the presence of an arbitration clause, the initiation of proceedings without judgment through bankruptcy, and the determination of the existence of the receivable in case of an objection to the proceedings.

For instance, in the case File No 2019/574, Decision No 2021/1710, dated 21.12.2021, the General Assembly of Civil Chambers of the Court of Cassation ruled that a construction contract was signed between the parties in exchange for a land share, and the defendant undertook the obligation to complete the construction and deliver the key. The plaintiff claimed that it suffered a loss of rent due to non-fulfillment of the obligation and initiated insolvency proceedings against the defendant. Following the objection of the defendant company to the proceedings, a lawsuit was filed for the removal of the objection.

The defendant company primarily requested the dismissal of the lawsuit on procedural grounds, as the existing arbitration clause in the contract was signed between the parties.

The court of first instance determined that the existence of the receivable shall be determined first, followed by a decision on bankruptcy if the legal conditions are found to exist. The court accepted the preliminary objection of arbitration and dismissed the lawsuit on procedural grounds, stating that the plaintiff should first have its receivable adjudicated in the arbitration proceedings initiated before the Arbitral Tribunal of the Istanbul Chamber of Commerce and then initiate proceedings through bankruptcy based on the decision.

The plaintiff appealed the decision, which was subsequently rejected by the Regional Court of Appeal, finding the decision and reasoning of the first instance court appropriate.

The decision was then appealed to the 15th Civil Chamber of the Court of Cassation, which ruled that the bankruptcy proceedings should be handled as a whole, and there was no justification for applying first to the arbitral tribunal for the determination of the receivable and then to the courts for a bankruptcy decision. Furthermore, the Court of Cassation reversed the decision, noting that the assertion of the preliminary objection of arbitration against the plaintiff, who wanted to recover its receivables immediately and initiated proceedings through bankruptcy and then filed a lawsuit, was incompatible with the right to legal remedies and good faith.

Following the court of first instance's decision to resist on the same grounds as in its first decision, the file was sent to the Court of Cassation General Assembly of Civil Chambers.

In line with the 15th Civil Chamber of the Court of Cassation, the Court of Cassation General Assembly of Civil Chambers found it inappropriate to dismiss the case on procedural grounds due to the grounds that the bankruptcy proceedings are whole, the arbitration clause is not in good faith, and since the bankruptcy proceedings are governed by the simple procedure, there shall be no impediment to initiate proceedings directly through bankruptcy in accordance with the procedural economy.

The dissenting opinion adopted the reasoning of the court of first instance and found that the plaintiffs' initiation of proceedings through bankruptcy in order to prevent the enforcement of the arbitration clause was contrary to the rule of good faith.

Although there is no discussion on whether the bankruptcy decision is related to public order and it shall be ruled by the state court, following the objection to the proceedings initiated through bankruptcy without judgment, we deem it appropriate to determine the existence of the receivable by the arbitrator/arbitral tribunal to be established in accordance with the arbitration clause in the contract between the parties, if there is an arbitration clause in the contract between the parties, and then to ask the court for a bankruptcy decision. However, in the referenced decision of the Court of Cassation General Assembly of Civil Chambers, the proceedings regarding the investigation of the existence of the receivable, which qualifies as a primary lawsuit, is considered to be included in the bankruptcy process, and the elimination of the intention of the parties on the grounds of the procedural economy has been erroneous, in our opinion. It had a negative impact on the development and expansion of arbitration in Türkiye.

Therefore, to resolve the questions in the minds of practitioners and eliminate conflicting decisions of chambers in practice, it is necessary to adopt a decision on the unification of the cases on the matters discussed in this article.

With thanks to Ezgi Özdemir for her assistance on this article.

Makalenin Türkçe versiyonuna buradan ulaşabilirsiniz.

[1] Turkish Code of Civil Procedure, Act No. 6100, dated 12.01.2011.

[2] Pekcanıtez/Atalay/Özekes, “Medeni Usul Hukuku Ders Kitabı”, 4. Press, Ankara, 2016, p. 650

[3] Arslan/Yılmaz/Taşpınar Ayvaz/Hanağası, “İcra ve İflas Hukuku”, 7. Press, Ankara, 2021, p. 460

[4] 6th Civil Chamber of the Court of Cassation, File No 2021/1958, Decision No 2022/811, 16.02.2022 dated decision.

[5] 11th Civil Chamber of the Court of Cassation, File No 2018/3263, Decision No 018/7408, 27.11.2018 dated decision.

[6] 13th Civil Chamber of the Court of Cassation, File No 4625, Decision No 4623, 03.11.1978 dated decision (see: Prof. Dr. Ejder Yılmaz, Tahkimde İtirazın İptali Davası ve Tahkime Elverişlilik Kuralı, Dokuz Eylül University Law Faculty Journal, V.16, Special Issue 2014, p.531-554)