A Controversial Issue: Arbitrability of Corporate Disputes in Joint Stock Companies under Turkish Law

In today’s world, innumerable disputes arising out of agreements between shareholders cloud the court rooms and arbitration authorities. This study focuses the arbitrability of corporate law disputes and the validity of arbitration clauses designated in the articles of association (“AoA”) of joint stock companies under Turkish Law.

What are the distinctive characterictics of corporate disputes?

Basically, corporate disputes are divided into two categories as contractual and corporate disputes. Common characteristics of both categories unlike other disputes under law of contracts are as follows: (i) corporate disputes do not involve only the interests of parties of the contract but also involve those of shareholders, directors, employees and auditors; (ii) specific rules stipulating procedural matters of corporate disputes are deemed mandatory legal rules since they are to protect the interests of other stakeholders.

Corporate disputes may be defined as disputes arising out of corporate law related to the form and management of the company, and disputes between the company and its shareholders. Article of Associations (“AoAs”) and corporate decisions are examples of corporate disputes. Contractual disputes are originated from agreements such as, shareholders’ agreements, joint-venture agreements and share–purchase agreements. Some of the claims distinct to corporate disputes shall be the annulment of general assembly resolutions and actions for corporate dissolution and liability of directors.

Validity of Arbitration Clauses Provided in AoAs

There is no statutory obstacle under Turkish law that restricts insertion of arbitration clauses under articles of association that set out the rules according to which a company must be run and administered. Also, amendments regarding arbitration clauses might be made by way of an unanimous vote even if the original form of AoAs lacks such clauses. However, it is argued that the binding effect of such arbitration clauses provided in AoAs depends on the legal nature of the dispute. For instance, it is generally accepted in the doctrine that arbitration clause that is deemed corporate in nature, corporation, current and new shareholders and the board members shall be bound by it. On the other hand, if the arbitration clause provided in the AoA is deemed contractual in nature, only parties to the contract shall be bound by it.

In principle, corporate disputes are considered arbitrable[1]. However, arbitrability of disputes regarding actions for dissolution and the invalidity of corporate decisions ( i.e. general assembly resolutions) are still controversial.

Turkish Commercial Code numbered 6102 and dated February 14, 2011 (“TCC”) does not explicitly stipulate which corporate disputes are arbitrable. Therefore, general principles of arbitration under relavant Turkish law shall apply to the case. As per article 1(4) of Turkish International Arbitration Code numbered 4686 and dated July 5, 2001 (“TIC”), disputes concerning rights in rem over an immovable property in Turkey and that are not subject to parties’ consent are non-arbitrable. Parties consent hereby refers to the free disposition of subject matter in disputes by dispute settlement.

To get to the discussion upon corporate dissolution, views are split into three categories[2]. One view wholly rejects the arbitrability of corporate dissolution relying on the grounds that these are not subject to the parties’ consent and are closely linked with the law of persons. Secondly, the opposed view completely accepts that corporate dissolution matters are arbitrable. Finally, another view makes a distinction between voluntary and formal dissolutions and affirms that only voluntary corporate dissolutions are arbitrable.

Irrespective of three different views adopted in the doctrine, as per established case law of  Court of Cassation, corporate dissolutions are not subject to the parties’ consent  and are not arbitrable[3] relying  on the ground that article 531 of the TCC authorizes commercial court of first instance in the place of company’s registered office to decide upon dissolutions.

As being mentioned, the arbitrability of claims arising out of invalidity of corporate decisions are still discussed. Yet, arbitrability issue of corporate decisions is mostly referred to the challenge of the validity of general assembly resolutions. Once again, the views are split into three main arguments that: (i) these disputes are wholly non-arbitrable, (ii) arbitrability depends on the subject matter of the general assembly resolution  and thus, the resolutions regarding the will of the parties are considered arbitrable and (iii) arbitrability depends on the relief sought and thus, i.e. cancellation of general assembly resolutions or determination of validity are subject to the will of the parties and shall be arbitrable. In accordance with the established case law of the Court of Cassation, disputes arising out of cancellation of general assembly resolutions can not be resolved by an agreement between a claimant and defendant.

In order to draw a conclusion, especially those willing to challenge corporate decisions of a company and seek dissolution of a company shall appeal to competent courts of law rather than arbitration authorities in order to have a permanent relief. 

[1] Veziroğlu, C. (2019) Arbitration of Corporate Law Disputes in Joint Stock Companies under Turkish Law: A Comparative Analysis, Global Relations Forum Young Academics Program Policy Paper Series No.9

(Access: http://www.gif.org.tr/files/cem-veziroglu-makale.pdf)  

[2] Ibid.   

[3] Yargıtay 11. Hukuk Dairesi, E. 2014/141 K. 2014/6951, T. 09.04.2014.