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Validity of an Arbitration Agreement Made by an Unauthorized Representative

Validity of an Arbitration Agreement Made by an Unauthorized Representative

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In Turkish law, for a representative to be able to enter into a binding arbitration agreement on behalf of a principal, they must be specifically authorized by the principal (Turkish Code of Obligations Article 504/3 and Turkish Civil Procedure Law Article 74). An arbitration agreement made by a specially authorized representative can only become binding with the approval of the principal. For example, the commencement of arbitration proceedings by the principal personally may indicate the granting of this approval.

In the case of a legal entity, there is no need for special authorization for its organ to make an arbitration agreement. However, if a legal entity is represented by a person other than its organ, such as an employee, that person must be granted the authority to enter into an arbitration agreement.

In practice, arbitration agreements signed by unauthorized representatives are encountered frequently. In the past, the Court of Cassation held the view that even if the main contract signed by an unauthorized representative was performed, the arbitration agreement would not be binding. However, the Court of Cassation has changed this precedent. In its recent decisions, the Court of Cassation addresses the argument that an arbitration agreement is invalid because it was signed by an unauthorized representative within the framework of the principle of good faith. For instance, in a dispute that is the subject of a decision, the Court rejected the objection that the arbitration agreement, opened after 9-year performance of a contract dispute between the parties, was invalid because it was signed by an unauthorized representative. The Court ruled on the merits of the dispute. In the appeal case against this decision, it was requested that the decision be annulled on the grounds that an invalid arbitration agreement signed by an unauthorized representative was used to issue the arbitrator's decision (Turkish International Arbitration Law Article 15). The regional court of appeals, acting as the court of first instance, dismissed the annulment case. The regional court of appeals concluded that the contract had been effectively applied for 9 years until the date the dispute arose, the employer had knowledge of the contract content and had actually approved the contract by performing its obligations and collecting payments until the time of the arbitration application. The Court of Cassation's 11th Civil Chamber approved the decision. This decision is one of the many decisions by regional courts of appeals and the Court of Cassation that support arbitration proceedings.

By Cemile Demir Gökyayla, Partner, Beyza Sila Sürmeli, Trainee, KP Law

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