Set-Off Defences Against Enforcement of a Foreign Arbitral Award in Turkiye

A debtor facing enforcement of a foreign arbitral award in Türkiye may attempt to raise a set-off claim against the amount owed, but Turkish courts distinguish this from the narrow, exhaustive grounds under which enforcement itself can be refused. A valid, liquid and due counterclaim can potentially be set off against the enforced amount as a matter of substantive obligations law, but it does not by itself provide a basis to defeat recognition or enforcement of the award.

Debtors sometimes hold their own claims against the award creditor, arising from the same or a different commercial relationship, and want to use those claims to reduce or eliminate what they must pay. Understanding where set-off fits, as a substantive defence separate from the statutory grounds for refusing enforcement, is essential to using it effectively rather than mistakenly presenting it as a challenge to the award's validity.

Articles 60 to 63 of Law No. 5718 on Private International Law and International Civil Procedure (MOHUK) set out the exhaustive statutory grounds on which enforcement of a foreign arbitral award may be refused, consistent with the New York Convention, and set-off is not among them. Set-off as a substantive right is instead governed by the general principles of Turkish obligations law under the Turkish Code of Obligations No. 6098, which allows a debtor to set off a due, liquid counterclaim against a claim owed to the same creditor, subject to the applicable conditions.

Turkish courts and enforcement authorities have generally treated a set-off claim as a separate matter from the enforcement decision itself, meaning that a debtor cannot use an alleged set-off to argue that the award should not be recognised or enforced under the New York Convention grounds. Where the debtor holds an independently established, undisputed claim, set-off may instead become relevant at the stage of actual execution against the debtor's assets, following the general Turkish rules on set-off in debt collection.

There is discussion about whether a set-off claim that was itself already raised and rejected during the arbitration should have any further life at the enforcement stage in Türkiye, given that re-litigating matters already decided by the tribunal risks undermining the finality of the award. Commentators generally agree that a genuinely independent claim, not addressed by the tribunal, stands on different footing than one the tribunal already considered and rejected.

A debtor wishing to rely on set-off should establish that the counterclaim is due, liquid and independently substantiated, and should be prepared to pursue it through the appropriate procedural channel, separate from any objection to the statutory grounds for enforcement, since conflating the two risks weakening both arguments.

Set-off claims are subject to their own applicable statute of limitations under Turkish obligations law, independent of the timeline governing the enforcement action for the arbitral award, and a debtor should assess whether its counterclaim remains within that limitation period before relying on it.

The competent Turkish civil court of first instance handles the enforcement action for the award, while a set-off claim, if it requires independent adjudication rather than simple application at the execution stage, may need to be pursued as a separate action or defence within the appropriate procedural framework.

The debtor should prepare documentation substantiating the counterclaim, such as contracts, invoices or correspondence establishing the debt owed by the creditor, together with evidence showing that the claim was not already considered and rejected within the arbitration itself.

A frequent mistake is presenting a set-off argument as if it were a ground to refuse enforcement of the award, which Turkish courts will not accept given the exhaustive nature of the statutory grounds. Debtors also sometimes attempt to revive a set-off claim that the tribunal already examined and rejected, which is unlikely to succeed given the binding effect of the award on matters it has already decided.

A debtor with a genuine, independent counterclaim should pursue it through the correct procedural route rather than folding it into an objection to enforcement of the award itself, since Turkish courts keep these two questions distinct and conflating them rarely serves the debtor's interest.