Mandatory Mediation For Commercial Disputes

Introduction

Law No 7155, formally titled “Law on the Procedure of Initiating Debt Enforcement Proceedings For Payment Claims Under Subscription Agreements” was published in the Official Gazette dated 19 December 2018 and numbered 30630 ( “Law No. 7155”).

A substantial part of Law No. 7155 is de voted to regulating new rules and procedures for the initiation of enforcement proceedings for payment claims under consumer subscription agreements. These new rules will require substantial changes to the how enforcement claims towards consumers will need to be processed in the future.

While these changes are important and merit discussion in their own right, they are secondary to the paradigm shift that is introduced by Articles 20-23 of Law No. 7155, where certain commercial disputes are held subject to mandatory civil mediation effective from 1 January 2019 onwards.

Mandatory mediation requirements

According to Article 20 of Law No. 7155, “commercial disputes” where the subject matter is a debt or indemnity claim requiring the payment of a sum of money will be subject to mandatory commercial mediation.

Accordingly, any party that wishes to bring formal court proceedings in relation to a commercial payment claim will first be required to complete the applicable mandatory mediation proceedings.

Commercial disputes are primarily described in Article 4 of the Turkish Commercial Code, though there are additional designations made under specific laws. In broad terms, commercial disputes will be those that relate to the commercial enterprises of both parties and will categorically include disputes between corporations, whose dealings are generally assumed “commercial” within the meaning of the law.

The mandatory mediation requirement will apply to proceedings brought after 1 January 2019 and claims pending before courts as at this date will be excluded.

Pre-condition to formal litigation

As noted above, a party wishing to bring formal court proceedings for a commercial payment claim will first need to exhaust applicable mandatory mediation proceedings.

Article 23 of the Law No. 7155, amending Civil Mediation Law No. 6325, provides that court petitions for commercial payment claims should be accompanied by a certified copy of the minutes of mediation to demonstrate that mediation proceedings were completed without reaching a settlement. The court provides a definite period of 1 week for the provision of such minutes. If mediation minutes are not provided or it is understood that a claim was purported to be brought without first exhausting applicable mediation proceedings, the court will be required to dismiss the claim on procedural grounds, without any review of merits.

The new Article 18/A of Civil Mediation Law No. 6325, as introduced by Law No 7155, confirms that mandatory mediation requirements will not apply in cases where the parties have agreed to submit their disputes to arbitration.

Mediation proceedings

According to the new Article 18/A of Civil Mediation Law No. 6325, mediators will be appointed from a predetermined list of registered mediators. A mediator from such list can be selected by agreement of the parties, but in other cases, appointments will be made by the relevant mediation bureau established in the relevant jurisdiction.

Law No. 7155 requires mediation proceedings to be concluded within 6 weeks of application, with a potential 2 week extension at the discretion of the mediator.

A party that fails or refuses to participate in mediation proceedings will risk losing its right to claim indemnity for and, if the other party was otherwise ready to engage in mediation, having to assume all of, the subsequent court costs, even if it is awarded its substantive claim in whole or in part.

Conclusion

There is no question that the prohibitively protracted case cycles of commercial courts is a pressing and tangible issue that needs to be addressed and resolved. Ultimately, the ability to provide meaningful legal remedies in a timely manner is perhaps the most important marker in gauging confidence in any legal system.

In tackling this important issue, Law No. 7155 appears to recycle the legislative response provided in 2017 to similar case-length issues of employment courts. It is easy to argue why this may not be a universal solution.

For one thing, it is still early to say whether mandatory mediation provided a net benefit in the context of employment disputes. Furthermore, even with the benefit of more time, it is going to be difficult to say with authority whether or to what extent such benefits would translate into commercial disputes. Commercial payment claims can involve great complexity and sophisticated commercial parties will typically exhaust paths of amicable resolution before elevating matters to the stage where they would seek to initiate formal proceedings. It appears difficult to accept, at least categorically, that such parties would benefit from mandatory mediation.

From this perspective, a materiality threshold for small payment claims could have offered a helpful, though admittedly not precise, distinction. It is still possible that implementation experience will support the need to introduce such a distinction or provide exceptions in the future.

However, for the time being, commercial parties should be mindful that, going forward, they may be required to complete mandatory mediation proceedings before bringing commercial disputes to Turkish courts.

Authors:

Murat Soylu

Can Özilhan

Duru İyem

Can Yılmaz