Introduction

The action to set aside an objection constitutes a specialised form of proceedings governed by Article 67 of the Turkish Execution and Bankruptcy Law No. 2004 ('EBL'). The principal purpose of this action is to invalidate a debtor's objection to enforcement proceedings. Notwithstanding its procedural role in enabling the continuation of enforcement, substantial academic debate persists concerning the juridical nature of this remedy.

In its judgement of 3 April 2024 (Case No. 2024/212 E., Decision No. 2024/2703 K.), the 11th Civil Chamber of the Turkish Court of Cassation examined both the action to set aside an objection and the ancillary claim for damages arising from wrongful denial of debt in the context of arbitral jurisdiction. The judgement contains several significant findings in this regard. This article analyses the aforementioned decision.

Factual Background

The dispute arose from a licence agreement entered into between the parties. The agreement incorporated an arbitration clause providing that any disputes arising thereunder would be resolved through arbitration. Based upon claims derived from the agreement, one party commenced ex parte execution proceedings. Following the debtor's objection to the payment order, the creditor subsequently instituted an action to set aside the objection before the Istanbul Arbitration Centre.

The arbitral proceedings, conducted pursuant to the provisions of the International Arbitration Law No. 4686 ('IAL'), resulted in an award whereby the tribunal both upheld the creditor's claim founded upon the underlying contract and granted damages for wrongful denial of debt.

The respondent, against whom the arbitral award had been rendered, brought an action to set aside the arbitral award before the Turkish courts. In support of its application, the applicant argued that the arbitral tribunal lacked jurisdiction to determine an action to set aside an objection, asserting that such actions fall outside the scope of arbitrable disputes. The claimant further contended that commencing execution proceedings notwithstanding the existence of an arbitration agreement was inconsistent with the parties' expressed intention to arbitrate and that arbitral tribunals lack competence to render decisions binding upon execution authorities. It was also submitted that an action to set aside an objection should not be equated with a standard debt recovery action.

The claimant further asserted that the arbitral tribunal lacked jurisdiction to grant damages for wrongful denial of debt and that such a determination was contrary to public policy. It was argued that the action to set aside an objection is a remedy specific to executionlaw and that damages for wrongful denial of debt are neither contractual in character nor grounded in substantive law. Accordingly, the applicant contended that such damages fall outside the scope of the arbitration agreement. The applicant emphasised that damages for wrongful denial of debt constitute a sanction contemplated within the compulsory enforcement system and serve a public interest function, whereas arbitral tribunals possess competence only to resolve disputes arising under private law.

Moreover, the applicant maintained that the arbitral tribunal addressed the jurisdictional objection as a preliminary matter and determined, by way of an interim award, that it possessed jurisdiction. However, one arbitrator issued a dissenting opinion specifically concerning jurisdiction over the claim for damages. The applicant argued that, pursuant to Article 14 of the IAL, dissenting opinions must be included in the final award and that the failure to incorporate the dissent—notwithstanding its appearance in the interim award—constituted a violation of the rights to be heard and to a fair trial. On this basis, the applicant sought to set aside the arbitral award.

Assessment by the Regional Court of Appeal and the Court of Cassation

The court further observed that executionproceedings do not constitute litigation in the procedural sense and that, prior to the debtor's objection to the payment order, no arbitrable dispute has yet arisen. However, once such an objection is raised and a legal dispute materialises, the creditor is required to pursue the matter through arbitration pursuant to the arbitration agreement entered into between the parties. On the basis of this reasoning, the court concluded that the arbitral tribunal possessed jurisdiction to determine the action to set aside the objection.

With respect to damages for wrongful denial of debt, the court emphasised that this form of damages is specific to executionlaw. It is designed to discourage the unnecessary occupation of courts and executionoffices, and constitutes a specialised form of damages that may be awarded contingent upon the outcome of the action to set aside the objection. In the present case, the court found that, since the dispute did not concern matters of public policy and the damages in question were ancillary in nature, the arbitral tribunal was also competent to determine this aspect of the claim.

The court further stated that the underlying dispute was, in essence, a claim founded upon substantive law and therefore, pursuant to the parties' agreement to arbitrate, should have been resolved within the framework of arbitral proceedings. Consequently, the tribunal that was competent to determine the principal claim in the action to set aside the objection was likewise authorised to rule upon the associated claim for damages for wrongful denial of debt. On these grounds, the court concluded that the arbitral tribunal's determination to grant such damages was in conformity with the law.

With regard to the dissenting opinion, the court emphasised that, pursuant to Article 14/A, paragraph 4 of the IAL, arbitral awards must include any dissenting opinions. However, it noted that the absence of a dissenting opinion's reasoning is not expressly listed as a ground for setting aside under Article 15 of the IAL. The court further observed that the arbitral award had been rendered by majority vote, that the subject matter of the dissent had been acknowledged in the reasoning of the award, and that additional explanations were provided in a supplementary award. In light of these considerations, the court held that the omission of the dissenting opinion's reasoning from the final award did not constitute a violation of public policy and, consequently, did not amount to a ground for setting aside. Accordingly, the court dismissed the application to set aside the award.

Upon appeal, the Court of Cassation reviewed the matter and concluded that the judgement of the Regional Court of Appeal was procedurally and substantively sound. The Court dismissed the appeal and affirmed the lower court's judgement.

Conclusion

The judgement under review is of particular significance as it confirms the arbitrability of the action to set aside an objection, a specialised remedy arising from enforcement law. It is also noteworthy in that it recognises that damages for wrongful denial of debt, which originate from compulsory execution law and are ancillary to the action to set aside an objection, may be granted in arbitral proceedings.

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