32. UNAUTHORIZED REPRESENTATION and ARBITRATION AGREEMENT

EXPERT REPORT

A. INTRODUCTION

1.  I am Prof. Dr. İLHAN HELVACI, of Nispetiye Caddesi, Seramik Sokak, No 3/2, Bebek – 34342, Istanbul – Turkey.I am a faculty member of the Department of Civil Law at Istanbul University, School of Law.
2.  I am an academician who has been researching and working in the fields of Fundamental Principles of Civil Law, Law of Persons, Family Law, Law on Obligations (General Provisions), Law on Obligations (Specific Obligation Relationships), Property Law, Law of Inheritance and Law of Security for nearly 25 years. I have been teaching classes and writing academic works (articles and books) on these areas for nearly 25 years.
3.  At the same time, I have been an attorney at law registered with the Istanbul Bar since 1991. I have been the founder and manager of the Av. Prof. Dr. İlhan Helvacı Law Firm since 2009.
4.  In addition, for nearly 25 years I have been appointed by the courts as an expert on matters in which I have become specialised as a university lecturer and in line with such appointments, I have prepared expert reports addressing the courts.
5. In short I can state that I have the knowledge, professional experience and objectivity required to examine the issues discussed in this legal opinion within the framework of the principles of the Law on Obligations and to prepare a scientific and objective legal opinion on such issues.
   
    

   B. THE AUTHORITIES and THE ABBREVIATIONS
6. In preparing this legal opinion I primarily relied on: the old Code of Obligations no 818; the old Turkish Commercial Code no 6762; and the old Code of Civil Procedure no 1086.
7. These three laws have been repealed. The old Code of Obligations has been replaced by the new Turkish Code of Obligations no 6098 as of 1 July 2012 while the old Turkish Commercial Code has been replaced by the new Turkish Commercial Code no 6102 as of 1 July 2012 and the old Code of Civil Procedure has been replaced by the new Civil Code of Procedure no 6100.
8. The reason for using the old laws as a basis for preparing this legal opinion is clear. The dispute under examination occurred between the parties at a time when the previous laws were in force. In light of the principle that laws shall not have retrospective effect, it is not possible to resolve a dispute on the basis of the provisions of laws that have entered into effect after the dispute had arisen.
9. In this legal opinion when reference is made to the provisions of the old laws, the corresponding provisions of the new laws are also provided in case this is of assistance to the Court.
10. The below works were made use of in preparing this opinion:  
    1. Kemal Oğuzman / Turgut Öz; Borçlar Hukuku, Genel Hükümler (Law of Obligations, General Provisions), Istanbul, 2009.
    2. Fikret Eren; Borçlar Hukuku, Genel Hükümler, (Law of Obligations, General Provisions) Istanbul, 2010.
    3. Murat İnceoğlu; Borçlar Hukukunda Doğrudan Temsil (Direct Representation in the Law of Obligations), Istanbul, 2009.
    4. Selahattin Sulhi Tekinay / Sermet Akman / Haluk Burcuoğlu / Atilla Altop; Tekinay Borçlar Hukuku, Genel Hükümler (Law of Obligations, General Provisions), Istanbul, 1993.
    5. Necip Kocayusufpaşaoğlu; Borçlar Hukuku, Genel Bölüm, Borçlar Hukukuna Giriş, Hukuki İşlem, Sözleşme (Law of Obligations, General Section, Introduction to the Law on Obligations, Legal Transaction, Contract), Istanbul, 2008.
    6. Baki Kuru; Hukuk Muhakemeleri Usulü (Civil Procedure), V: II and VI, Istanbul, 2001.
    7. Turgut Uygur; Açıklamalı - İçtihatlı Borçlar Kanunu Sorumluluk ve Tazminat Hukuku (Liability and Indemnity Law in the Code of Obligations – with explanations and annotations), V: I, Ankara, 2003.
    8. Haluk Tandoğan; Borçlar Hukuku, Özel Borç İlişkileri (Law on Obligations, Specific Obligation Relationships), V: II, Istanbul, 1989.
    9. Aysel Çelikel / Bahadır Erdem; Milletlerarası Özel Hukuk (Private International Law), Istanbul, 2010.
    10. Gülören Tekinalp; Milletlerarası Özel Hukuk, Bağlama Kuralları (Private International Law, Rules on Connecting Factors), Istanbul, 2009.
    11. Ayfer Kutlu Sungurbey; Yetkisiz Temsil, Özellikle Culpa in Contrahendo (Sözleşmenin Görüşülmesinde Kusur) ve Olumsuz Zarar (Unauthorized Representation, in particular Culpa in Contrahendo (Fault in the Conclusion of a Contract) and Negative Damages), Istanbul, 1988.
    12. Turhan Esener; Mukayeseli Hukuk ve Hususiyle Türk - İsviçre Borçlar Hukuku Bakımından Salahiyete Müstenit Temsil (Comparative Law and Representation Specifically Related to Capacity within the Rubric of Turkish – Swiss Code of Obligations), Ankara, 1961.
11. The authors of each work are persons who have respected reputations among academicians.
12. The abbreviations used in the opinion and their corresponding meanings are as follows:

    a.           : article

    BGE      : Entscheidungen des Schweizerischen Bundesge-   richtes

    CCP      : Code of Civil Procedure

    D           : Decision       

    F            : File

    fn           : Footnote

    ibid.       : ibidem (in the same place)

    p.           : page

    par.        : paragraph

    V.          : volume

     

    C. REQUEST for an OPINION and its PURPOSE
13. … … International LLP, acting on behalf of V ... Company Limited, asked me to prepare this legal opinion.
14. In its request to me, … … International LLP indicated that a dispute between its client V ... Company Limited and H … ve … … … Endüstrisi Anonim Şirketi had been brought to adjudication before ICC Arbitration and asked whether or not I would prepare a written legal opinion on such dispute for submission to the English High Court subject to article 35 of the CPR.
15. … … International conveyed the following documents together with its request to me:

1. Award of the ICC Court of Arbitration dated 10 July 2012;
2. Claim Form dated 7 August 2012;
3. Claimant’s Skeleton Argument dated 7 August 2012;
4. Respondent’s Notice dated 28 September 2012;
5. Defendant’s Skeleton Argument dated 26 September 2012;
6. Statement of Claim dated 29 January 2013;
7. Defence dated 6 March 2013;
8. Reply dated 12 April 2013;
9. Witness Statement of B. U. dated 23 September 2011;
10. Witness Statement of S. K. dated 23 September 2011;
11. Additional Witness Statement of B. U. dated 7 October 2011;
12. Additional Witness Statement of S. K. dated 7 October 2011;
13. Witness Statement of I. H. dated 26 September 2011;
14. First Witness Statement of A. R. S. dated 7 August 2012;
15. Witness Statement of B. U. dated 15 January 2013;
16. Witness Statement of S. K. dated 16 January 2013;
17. Expert Report of … … dated 17 January 2013; and
18. Witness Statement of I. H. dated 26 April 2013.

16. I also had a two volume chronological bundle of the documents referred to in these materials.
17. After having examined the tribunal’s decision and the documents referred to at paragraph 15 above, as well as the two volume chronological bundle, and taking into consideration the requirements of part 35 and Practice Direction 35 of the Civil Procedure Rules; the Protocol for the Instruction of Experts to give Evidence in Civil Claims; the Practice Direction on Pre-Action Conduct; and Appendix 11 to the Commercial Court Guide I ascertained that the questions for which answers had been requested were within the scope of my expertise and thereby agreed to prepare a legal opinion to be submitted to the Court.
18. Even though I could have prepared the legal opinion in English, I chose to prepare it in my native language of Turkish. I have reviewed the English version of the report and I have ascertained that it reflects the Turkish version. Nevertheless, my right to review the translation of my words on points that raise doubt is reserved.
19. Furthermore, I must state that the fact that … …, acting on behalf of V ... Limited, made this request of me has not in any way affected the views I have argued in this legal opinion.
20. I have prepared this legal opinion in line with the principles of scientific study and from a wholly objective point of view. I would like to state that I am aware that this legal opinion which I have prepared may serve as the basis for the Court’s decision and may directly affect the Court’s decision.
21. I would also like to note that I have collected and published the 33 legal opinions I wrote between 2000 and 2010 in a book titled “Borçlar Hukuku (Özellikle Sözleşmesel Uyuşmazlıklar) Miras Hukuku ve Eşya Hukukuna İlişkin Hukuki Mütalaalar” (Legal Opinions on the Law on Obligations (in particular Contractual Disputes), Law of Inheritance and Property Law). I believe that this is an indicator of the level of care I take in approaching the legal opinions I prepare for submission to courts with scientific objectivity and impartiality.
     

    D. BRIEF SUMMARY OF THE DISPUTE
22. The present dispute is formally known as H … ve … … … Endustrisi AS v V … Company Limited, claim number 1055/2012. The claim is being heard in the Commercial Court in the Queen’s Bench Division of the High Court of England and Wales in London.
23. This case is an appeal brought by H against a Partial Award dated 10 July 2012 made by Professor … … sitting as sole arbitrator ("Award"). The arbitration was conducted under the auspices of the International Chamber of Commerce’s International Court of Arbitration. The Award ordered H to pay V US$3,142,500, plus interest and costs. H filed this appeal against the Award on 7 August 2012.
24. The parties’ dispute concerns a contract for the sale of rebar steel by H to V. H did not deliver the steel and alleges that the contract, and the arbitration clause it contained, are invalid. The relevant arbitration clause provided for London arbitration, though during the negotiation of the contract there were also versions which provided for arbitration in Paris or Istanbul.
25. The contract was not negotiated by V directly with H. H used two agents, S P Limited (based in England) and C A Limited (based in Hong Kong), to negotiate the contract on its behalf. H provided S P and C A with an open letter that stated that S P and C A were authorised to act as its agent in the Hong Kong market. There is no specific mention of authority to conclude arbitration agreements in that letter.
26. V believed that S P and C A had H’s authority to propose Paris arbitration and ultimately to agree to London arbitration. H says that it was unwilling to accept any form of arbitration other than Istanbul arbitration and that S P and C A were not authorised to agree to any other forum for arbitration. V says that, even if that was the case, V was unaware that H would only accept Istanbul arbitration and that S P and C A had actual or ostensible authority to agree to arbitration in any other forums.
27. On the assumption that a binding contract was concluded and that contract was wholly governed by Turkish law (which are live issues in the appeal but not matters on which Turkish law evidence is required), H allege that neither S P nor C A had the power to bind H to an arbitration clause.
28. Dr. … … has said that under Turkish law the authority of an agent to bind its principal to an arbitration agreement must be in writing and signed and must refer specifically to the power to conclude arbitration agreements. There is no signed authority in those terms here. Dr … also suggests that the arbitration agreement is not binding because it is not signed by the principal H. As a consequence, it is asserted by H that there is no valid arbitration agreement and the tribunal had no jurisdiction to hear the dispute.
29. At a case management hearing on 1 February 2013, the Court ordered that the parties may each put into evidence a report from an expert on Turkish law. The report is to be confined to the following issues:

1. the requirements of an agent’s authority to enter into a valid and binding arbitration agreement on behalf of a principal;
2. whether, in order to be valid and binding, an arbitration agreement must be in writing and signed; and
3. whether, as a matter of Turkish law, the law applicable to the agent’s authority is the law of the place of business of the agent.
    

    

   E. QUESTIONS THAT MUST BE EXAMINED

1. If a Turkish court were to decide the present dispute, the question of whether the substantive laws of Turkey or another jurisdiction shall be applied would be decided by the rules of Turkish Private International Law. Therefore, this opinion will first discuss which law is applicable to the agent’s authority as a matter of Turkish Private International Law. The opinion will then analyse the relevant rules of Turkish substantive law in respect of the requirements of an agent to enter into an arbitration agreement on behalf of its principal and the requirements for an arbitration agreement to be valid.

    

1. Whether as a matter of Turkish law the law applicable to the agent’s authority is the law of the place of business of the agent?

1. In Turkish law, the issue has been regulated under article 30 of the Law no 5718 on Private International Law and Procedural Law⁽¹⁾ by providing that: “(1) The representation relationship arising from the legal relationship between the principal and the agent is subject to the law applicable to the agreement between them. (2) The law of the place of business of the agent shall be applied to the criteria as to whether an act of the agent imposes an obligation upon the principal vis-à-vis a third person. If the agent has no place of business or the place of business is unknown to the third person or if the authority is exercised outside of the place of business the representative authority is subject to the laws of the country in which the authority has actually been exercised. This paragraph shall apply to the relationship between the representative and the third party in unauthorized representation. (3) If there is a service relationship between the principal and the agent and the agent has no independent place of business, the representative authority is subject to the laws of the country in which the principal’s place of business is located.”
2. The ratione legis of this provision as described in the Parliamentary report which was prepared before the enactment of the law is that the law of the place of business of the agent is the only law which may be known by all of the parties involved in this relationship (i.e. the principal, the agent and the third party).

   This provision ascertains the substantive law to be applied by the judge in cases before the Turkish courts that have a foreign element and in which the parties have not selected the substantive laws to be applicable in the case of a dispute.

3. According to the 2^nd paragraph of the provision, the law of the place of business of the agent will be applied to the resolution of issues such as the existence of authority, lack thereof, or the question of whether the limits of such authority have been exceeded. In this manner the legislator has accepted that the law of the “agent’s place of business” shall be applied to the representation relationship as an objective law, of which all parties in the three way relationship can be aware in advance⁽²⁾.
4. At the same time if the agent has no place of business or the place of business is unknown to the third person or if the agent has exercised its authority outside of the place of business, the laws of the country in which the authority has actually been exercised will be applied to the representative authority⁽³⁾.
5. If the Turkish court determined, in accordance with the above principles, that Turkish law did not apply to the question of whether the agent had authority to conclude an arbitration agreement on behalf of the principal, it would then proceed to determine the question under the relevant law.The remainder of this report considers the position if Turkish law does apply to this question.
    

   2. What are the requirements of an agent’s authority to enter into a valid and binding arbitration agreement on behalf of a principal?

   a. Specific authority to enter into arbitration agreements

6. Under Turkish law, the granting of representative authority is a unilateral legal transaction and is not subject to any formality requirements (sıhhat şekli). Representative authority may be granted in any manner, either verbally or in writing. It can be said that there is near unanimity in Turkish doctrine on this matter. Within this context, there is no formality requirement to which the principal is subject when granting another person (its agent) representative authority to conclude an arbitration agreement with a third person on such principal’s behalf and account.
7. At this point it is necessary to refer to paragraph 3 of article 388 of the old Code of Obligations no 818 where the provisions pertaining to power of attorney/mandate (vekâlet) have been set out, since even though the provision pertains to power of attorney/mandate agreements, it shall be applied mutatis mutandis to circumstances where representative authority has been granted without a power of attorney/mandate agreement⁽⁴⁾. According to such provision⁽⁵⁾: “Unless the proxy has specific powers, such proxy cannot file a lawsuit, reach a settlement, conclude arbitration agreements/clauses, issue negotiable instruments, make grants, assign an immovable or restrict such immovable with a right.”
8. As can be seen, article 388 of the Code of Obligations provides that the proxy (agent) cannot conclude an arbitration agreement on behalf of the client (principal) unless such proxy (agent) has specific authority.
9. A similar provision to that in article 388(3) of the Code of Obligations no 818 is also included in article 63 of the Code of Civil Procedure no 1086 as part of the provisions pertaining to the granting of power of attorney for lawsuits. This article provides that⁽⁶⁾: “Unless explicit permission has been granted, the proxy cannot agree to a settlement nor conclude arbitration agreements/clauses (âharı tahkim) nor grant a release nor waive the lawsuit in any manner whatsoever nor accept the claims of the other party nor accept any oaths that may be offered nor collect and receive awards nor release mortgages. The power to declare acceptance or rejection of the offer of an oath may only be granted after the person who shall be swearing the oath becomes cognizant of the issue being sworn to.”
10. This provision also states that an attorney must specifically be authorised to conclude an arbitration agreement on behalf of his/her client.
     

    b. No formal requirements for authority to enter into arbitration agreements

11. Some authors have argued that if the legal transaction or contract that the agent will conclude on behalf of the principal is subject to a formality requirement, then the granting of representative authority should be subject to the same formality requirement as such contract to be concluded by the agent. This view has been argued in Turkish law in particular by Oğuzman and Öz⁽⁷⁾.
12. If this view is adopted in the case before us, in order for the representative authority granted by the principal to the agent to conclude an arbitration agreement with a third party on the principal’s behalf and account to be valid, it will be necessary for the granting of such authority to comply with the simple requirement of writing (adi yazılı şekil şartı), since in our legal system, the validity of an arbitration agreement is subject to the simple requirement of writing. According to the article 517 par (1) of the Code of Civil Procedure, “the arbitration must be in writing”.
13. However, this view has no basis, in particular in terms of the old Code of Obligations no 818; which is why the dominant view in the doctrine has rightfully rejected this view.
14. Within the doctrine Tekinay / Akman / Burcuoğlu / Altop have made the following explanation regarding this issue⁽⁸⁾: “The granting of representative authority is not subject to the requirement of a specific formality. And in fact this rule remains the same even if the exercise of such authority includes the carrying out of an act that is subject to a specific formality requirement.”
15. According to Eren⁽⁹⁾: “In principle, the granting of representative authority is not subject to any formality requirement. Authority may be granted either verbally or in writing. Even if the transaction that will be carried out through representation is subject to a specific formality requirement, it is not necessary for the representative authority granted to the agent, in order for such transaction to be carried out, to be subject to the formality requirement.”
16. In principle, the situation is the same in terms of the new Code of Obligations no 6098. The new Turkish Code of Obligations has not subjected the granting of representative authority to any formality requirement. The Turkish Code of Obligations no 6098 has only added an exception in terms of agreements of suretyship. Article 583(1) of the new Turkish Code of Obligations has introduced the requirement that for an agreement of suretyship to be valid, such agreement must comply with the qualified requirement to be in writing (nitelikli yazılı şekil şartı) (meaning that the date, amount and statement of joint and several liability must be written in hand by the surety) while the second paragraph provides that when the principal is granting the specific authority to become a surety on the principal’s behalf, the principal must comply with the same formality requirements.
17. The fact that the legislator generally preserved the old Code of Obligations’ resolution prevailing since 1926 not to subject the granting of representative authority to any kind of formality requirement in the new Turkish Code of Obligations no 6098 and only introduced an exception in terms of contracts of suretyship confirms the dominant view that in our legal system even if the transaction to be concluded by the agent is subject to a formality requirement, the representative authority to be granted for this matter is not subject to a formality requirement in any way.
18. As I note above, article 388 of the Code of Obligations provides that the proxy (agent) cannot conclude an arbitration agreement on behalf of the client (principal) unless such proxy (agent) has specific authority. While based on the requirement of the provision that the agent must “specifically” be granted the authority to conclude an arbitration agreement on behalf and account of the principal it could be concluded that the granting of such authority is subject to a formality requirement, in reality this is not the case.
19. This provision of the Code of Obligations no 818 states that the agent cannot conclude an arbitration agreement on behalf and account of the principal unless specifically authorised to do so but does not specify a formality requirement for granting such authority to the agent. Consequently, while it is mandatory for the agent to have been specifically authorised to conclude an arbitration agreement on behalf of the principal, it is not absolutely required for such specific authority to have been granted in writing. In other words the client (principal) may verbally grant such authority to its proxy (agent).
20. Article 63 of the Code of Civil Procedure no 1086, quoted above, also initially gives the impression that the authority must be granted in line with a required formality. Yet the provision only requires that the attorney has specific authority to conclude the arbitration agreement on behalf of his/her client and does not include any formality requirement with regard to granting the authority.
21. Baki Kuru, one of the most highly regarded authors working in the area focusing on the Code of Civil Procedure has stated that⁽¹⁰⁾: “…We examined above the transactions that require the granting of specific authority to proxies. A proxy whose power of attorney does not contain such specific power cannot carry out the transactions listed above. What will happen if s/he does so regardless? The client may give ratification for the transaction carried out by the proxy who did not possess specific authority…”
22. If the provisions of the Code of Civil Procedure had subjected the power to conclude arbitration agreements on behalf of clients included in the powers of attorney granted to attorneys for lawsuits to a formality requirement, the author could not have argued in favor of this view. If a power that must be granted to an attorney were subject to a formality requirement, the client giving ratification for the arbitration agreement after its conclusion would not have given the transaction validity. The client would have had to give its attorney specific powers by complying with the formality requirement and the attorney would have to re-execute the arbitration agreement by exercising such specific power.
23. At this point we believe that it will be beneficial to quote some explanations made by Kocayusufpaşaoğlu, one of the most reputable names in Turkey with regard to the Law on Obligations⁽¹¹⁾: “Since there are no provisions in the law requiring the granting of representative authority to be in a certain form, even if the transaction to be conducted by the agent on the basis of such authority is subject to a formality requirement, the act of granting authority (reserving the provisions of article 288 of the CCP in terms of proof) may be carried out without regard to formalities. … In this manner, aside from the restrictions with regard to the Law on Evidence, the authorisation of agents without regard to formalities shall be valid. Not only is this the view that is dominant in Turkish doctrine and practice but it is also shared by the Swiss Federal Court and long-standing doctrine…”
24. However, in cases where such authority has been granted verbally, the problem of proving the claim that the agent has specifically been authorised with regard to arbitration will arise. In such case a simple acknowledgement by the client that such client grants representative authority to its proxy to conclude an arbitration agreement on the client’s behalf and account will be sufficient. Or the party claiming that the principal had granted its agent the authority to conclude an arbitration agreement on behalf and account of the principal may suggest that the party arguing the contrary swear an oath and if such party avoids swearing such oath it will be proven that it had granted such representative authority to its agent.
25. In short, according to our Code of Obligations, the granting of representative authority is not subject to any formality requirement. Such authority may be granted verbally or in writing.The question of whether or not the principal had given such specific authority prior to the conclusion of the arbitration agreement or whether or not the principal subsequently ratified such conclusion will be a matter of evidence. The agent must specifically be authorised to conclude an arbitration agreement on behalf of the principal. However, the granting of such representative authority by the principal to the agent is also not subject to any formality requirement. At the same time if there is no specific representative authority granted in writing, the person claiming that the agent possesses such authority shall be required to prove his/her/its claims in accordance with the rules on proof of legal transactions (article 288 of the CCP).
     

    c. Ratification of unauthorised acts

26. The last item that must be discussed before concluding the explanations under this heading is the issue of ratification of unauthorised acts. If a person has carried out a legal transaction with a third person on behalf and account of another without possessing any representative authority or by exceeding the limits of his/her representative authority, the alleged principal may give ratification for such transaction and with this ratification, the transaction will become valid as of the moment that it was carried out. Article 38 of the old Code of Obligations stipulated that⁽¹²⁾: “If a person concludes a contract on behalf of another person even though s/he has no such power, such person shall not be an obligor or obligee unless s/he gives ratificationfor this contract. The other party is entitled to demand that the principal state whether or not s/he gives ratification for such contract within a reasonable period of time. If no ratification is given within such time period, that person shall not be bound.”
27. According to this provision, ratification is a constitutive transaction. The declaration of ratification is not subject to formality requirements. It may be given verbally or in writing. Furthermore it is also possible for the ratification to be express or implied.
28. In fact, also referencing Becker, who discusses this issue in terms of the Swiss Law on Obligations, which is the basis for the Turkish Law on Obligations, Tandoğan, who is one of the most respected scholars in Turkish doctrine in the field of specific obligation relationships, has made the following explanations⁽¹³⁾: “If the proxy has carried out work requiring specific authorisation without having obtained such authorisation, it is possible for the client to cure such lack of authorisation by giving its ratification after the fact.”
29. Had the power that must specifically be granted to the proxy (agent) been subject to a formality requirement, the subsequent granting of ratification by the client (principal) for such transaction could not have legitimized such transaction. The client (principal) would have had to grant its proxy (agent) specific powers in compliance with the formality requirement and the proxy would have had to redo the transaction by exercising these specific powers.
30. The explanations made in the doctrine by Eren on this matter are completely satisfactory⁽¹⁴⁾: “The relevant declaration of intent may be express or implied. For instance, the principal’s payment for the three tons of wheat purchased by the unauthorised agent would constitute an example of implied ratification. If required by the specifics of the circumstances and in particular the rule of honesty, lack of action or silence may also be deemed as the granting of ratification. Even if the actual transaction is subject to a formality requirement, the ratification is not subject to any such formality requirement.”
31. Within this context it is relevant to refer to a Court of Appeal ruling which deemed that the failure to object to a contractual relationship over a long period of time would constitute ratification. According to the Court of Appeal, 11^th Civil Chamber ruling dated 4 June 1985 and numbered 5206 F, 7255 D⁽¹⁵⁾: “ … However, according to the provisions of article 38 of the Code of Obligations, if a principal gives express or implied ratification for the contract executed without the power of representation then such principal will be bound by such contract …”
32. İnceoğlu’s writings in his dissertation titled “Direct Representation in the Law of Obligations” on the issue of whether silence on part of the principal constitutes ratification of the contract is wholly satisfactory⁽¹⁶⁾: “ … As a rule, it is not possible to accept silence as a declaration of intent or ratification in connection therewith. This is particularly true for instances where the principal is not aware of the legal transaction that has been carried out. However, it has been argued in the doctrine that silence may constitute ratification in exceptional cases where in line with the rule of honesty the principal may be expected to object to the legal transaction or in other words give notice that it does not approve of the subject legal transaction. … However, the condition precedent for silence to constitute ratification is that the principal be aware of the unauthorised transaction.”
33. Sungurbey, who focuses on the issue in his dissertation titled “Unauthorised Representation” is of the same opinion and has summarised a justification made in a Swiss Federal Court decision, which could constitute an example for Turkish Law since the Swiss Code of Obligations was the basis of the Turkish Code of Obligations⁽¹⁷⁾: “The Swiss Federal Court has indicated that silence, the failure to raise any objections, on part of a person who has been notified of a contract made on his/her behalf may constitute approval based on the rules of honesty depending on the specifics of the circumstances.”
34. At this point it will be useful to recall article 122 of the Turkish Commercial Code no 6762 on agencies⁽¹⁸⁾: “If the agency executes a contract on its client’s behalf without authority to do so or by exceeding the limits of its authority, its client will be deemed to have given ratification for the contract unless such client immediately notifies the third person that it has not given ratification for the contract immediately upon discovering such contract. The agency will be personally responsible for the contract if ratification is not granted.”
35. As can be seen, the provision stipulates that in instances where the agency acts as an unauthorised representative, the client will be deemed to have given ratification for the contract if it remains silent by failing to give notice to the third person of its refusal to give ratification to the contract as soon as the client becomes aware of the situation.
36. Essentially all of these determinations show that in our legal system the alleged principal may grant express or implied ratification for the actions of the unauthorised representative who concluded a legal transaction on its behalf without any kind of representative authority or by exceeding its representative authority. If the principal remains silent with regard to certain provisions or the whole of the contract even though it has been notified of the legal transaction carried out by the representative, or commences preparations for performing the obligations imposed upon the principal by the contract, or performs such obligations, or accepts the third party’s performance of its obligations under the contract; and the foregoing creates an impression in the third party to the effect that the principal has ratified the legal act, as per the rule of honesty stipulated in article 2 of the Civil Code, the principal could be deemed to have given implied ratification for such contract.
37. The situation is the same in terms of a contract containing an arbitration clause that has been signed by an unauthorized representative acting without any representative authority or by exceeding its representative authority. If the alleged principal has not objected to such a contract containing an arbitration clause for a long time after it has been notified of it or has commenced preparations to fulfill the obligations imposed upon it by such contract or has fulfilled the instructions or requests made by the third party in such contract or has accepted the third party’s performance of its own obligations, such principal’s claim that the arbitration clause in the contract is invalid due to the unauthorised representation would violate the rule of honesty in article 2 of the Civil Code and the principal may be deemed to have given implied ratification for the arbitration clause.
38. According to the article 2 of Turkish Civil Code: “Every person is bound to exercise his rights and fulfil his obligations according to the principles of honesty. The law does not protect the evident abuse of a right.”
39. The rule of honesty quoted above relates to the requirement that every individual should act honestly and in an equitable manner. The failure to act honestly will prevent the individual from exercising a right.
     

    3.       Whether, in order to be valid and binding, an arbitration agreement must be in writing and signed?

40. In our legal system, the validity of arbitration agreements is subject to the simple requirement of writing. Article 517(par)(1) of the Code of Civil Procedure provides that⁽¹⁹⁾: “Arbitration must be in writing.”
41. As can be seen the provision is badly constructed. At the same time, there is no doubt that under Turkish law, arbitration agreements are required to be in writing.
42. Within the framework of article 517(par)(1) of the CCP, arbitration agreements may be concluded in two ways: the parties may execute a special agreement providing that any disputes arising from the contract between them will be resolved by an arbitrator or arbitrators (Arbitration Agreement). If such an agreement is executed in simple written form, there will be no doubt that the agreement satisfies the required formalities.
43. The parties may also agree in the contract that any disputes arising between them from such contract will be resolved by an arbitrator or arbitrators (Arbitration Clause). As long as such contractual clause is in writing, there will be no doubt that it will give rise to legal consequences.
44. According to the article 13 Turkish Code of obligations, as a rule, a contract which by law must be in written form must bear the signatures of all persons who are to be bound by it. However, where the law contains no provision to the contrary,– for the arbitration agreement there is no provision to the contrary – a letter or a telegram is deemed to be in writing, provided thatthe letter or the telegram form bears the signatures of the persons binding themselves.
45. Moreover according to the article 4 (par) 2 of the Turkish Arbitration Law in order for the written form condition to be deemed to have been fulfilled, an arbitration agreement has to be contained in a written document signed by the parties or in an exchange of a communication means such as letter, telegram, telex, fax or an electronic form or it should not have been objected in the Answer of the Respondent to an assertion of the existence of an arbitration agreement mentioned in the Request for Arbitration.
46. It is also possible for the specifically authorised agents of the parties to sign conclude such a contract on their behalf and account⁽²⁰⁾. At this point I would like to point out that I disagree with the opinion elucidated in paragraph 42 of page 12 of the legal opinion prepared by Mr. … … that “for an arbitration agreement to be valid it must have been signed by the principal,” because it is not correct.
47. Moreover, let me immediately add a reminder that it is not mandatory for the special authority granted to the agent to be in writing. Such authority may be granted verbally or in writing. I disagree with paragraph 45 on page 12 of … …’s legal opinion, which states that the authority granted to the agent must be in writing. The argument being made by … has no legal basis and is a minority opinion and as far as I can tell, among the general works and textbooks pertaining to the Law on Obligations in Turkish doctrine, this view is only argued by Oğuzman and Öz.
48. If the parties have failed to comply with the simple formality of writing in concluding the arbitration agreement or arbitration clause, such arbitration agreement or arbitration clause will not be valid. Such invalidity is definitive and automatic. The parties may raise this issue of nullity at any time and the judge must take it into consideration.
49. However it is also necessary to point out that if the parties appoint their arbitrators and follow up on the case before the arbitrators, the arbitration will be deemed valid (in existence) even if there is no valid written arbitration agreement between the parties⁽²¹⁾.
     

    F. CONCLUSION

50. According to the article 30(2) of the Law no 5718 on Private International Law and Procedural Law, as a rule, the law of the place of business of the agent shall be applied to the criteria as to whether an act of the agent imposes an obligation upon the principal vis-à-vis a third person.
51. In our legal system, the granting of representative authority is not subject to any formality requirements. In order for an agent to conclude an arbitration agreement on behalf of the principal, it is necessary for the agent to have been authorised specifically. At the same time the representative authority to be granted to the agent in relation thereto is not subject to any formality requirements. If the agent or third person alleges that the agent has such authority, then such agent or third person may prove such claim under the framework of the rules on proving legal transactions (article 288 of the CCP).
52. The principal may give ratification for the arbitration agreement concluded by the unauthorised agent after the fact. The ratification may be express or implied. The principal’s failure to object to, or silence in the face of having been informed of the contract, may, depending on the specific circumstances, be deemed to constitute ratification for the contract concluded by the unauthorised agent based on the rule of honesty in article 2 of the Civil Code.
53. The arbitration agreement is subject to the simple requirement of writing (article 517(par)(1) of the CCP). Provided that they adhere to the simple requirement of writing, the parties may either conclude an arbitration agreement by executing a wholly separate agreement or may also include an arbitration clause within a contract they have executed.
     

    G. EXPERT DECLARATION AND STATEMENT OF TRUTH

54. I confirm that I understand my duty to the Court, I have complied with that duty, and I will continue to comply with that duty. I am aware of the requirements of Part 35 of the Civil Procedure Rules, Practice Direction 35 of the Civil Procedure Rules, and the Protocol for Instruction of Experts to give Evidence in Civil Claims.
55. I confirm that I have made clear which facts and matters referred to in this report are within my own knowledge and which are not. Those that are within my own knowledge I confirm to be true. The opinions I have expressed represent my true and complete professional opinions on the matters to which they refer.