Dispute resolution clauses in contracts include arbitration agreements stating that the parties will attempt to resolve their disputes through mutual negotiation before going to arbitration proceedings, and if the dispute cannot be resolved in this way, arbitration proceedings will be resorted to.
In the event that negotiations prove unsuccessful, the parties agree to proceed with arbitration. This arrangement raises questions about whether such a provision casts doubt on the parties' intent to exclusively resolve disputes through arbitration. Another issue pertains to whether initiating arbitration proceedings without fully engaging in or completing the negotiation process constitutes grounds for annulling the arbitral award. The 11th Civil Chamber of the Court of Cassation, in its decision dated 13.4.2022, did not include a discussion on whether the record regarding the attempt to resolve the dispute through negotiations before the initiation of the arbitration proceedings would cause doubts about the will to arbitrate.
Analysis of the decision suggests that the Court of Cassation holds the view that such conditions do not render the arbitration agreement invalid. In the case underlying the decision, the plaintiff in the annulment action – who served as the defendant in the arbitration proceedings – contended that arbitration was initiated without prior attempts at negotiation, thereby seeking the annulment of the arbitral award. During the arbitration proceedings, the arbitrators indicated that the parties would engage in negotiations while the claimant prepared the statement of claim. The Regional Court of Appeal, where the annulment action was lodged, determined that the claimant's dispatch of two letters referencing the contractual clause mandating negotiation, the respondent's response, and the arbitrator's reminder about negotiation during the arbitration proceedings sufficed to fulfill the negotiation precondition. Nevertheless, the award fails to explicitly address whether the absence of any negotiation attempts before initiating arbitration would constitute grounds for annulment.
By Cemile Demir Gökyayla, Partner, and Omer Faruk Yasa, Trainee, KP Law
