The ICSID tribunal, comprised of Veijo Heiskanen (president), Carolyn B. Lamm (appointed by the Claimant), and Phillippe Sands, QC (appointed by the Respondent), has dismissed the USD 570 million claim of İçkale İnşaat Limited Şirketi (a Turkish construction company, which will be referred to as "Ickale") against Turkmenistan, through the award rendered on March 8, 2016, where the claims are found to be without merit. Carolyn B. Lamm and Philippe Sands issued partially dissenting opinions on the decision.
Ickale has requested supplementary decision, and rectification of the award on April 6, 2016, and these requests were denied, with some minor exceptions, on October 4, 2016.
Summary of the Parties' Contentions
Ickale initiated the ICSID arbitration in 2010 against Turkmenistan on the allegations that Turkmenistan had violated the provisions of the Turkey-Turkmenistan BIT. The Claimant claimed that it opened a branch office in 2004, and concluded a total of thirteen contracts for various public construction projects in Turkmenistan during the period from 2004 to 2009. However, and particularly following the demise of the former President of Turkmenistan, the government and state entities of Turkmenistan expanded the scope of works without additional compensation, that there were unjustified delays in payments, that they imposed unfair penalties, and expropriated machinery and equipment that belonged to the Claimant in order to cover unfair penalties for contested delays.
On the other side, Turkmenistan based its procedural defences on the well-known provision of the Turkey-Turkmenistan BIT that requires the dispute first be referred to the local courts, which the Claimant failed to do, that the works of the Claimant do not qualify as investment, and that these claims are contractual claims, rather than treaty claims. According to Turkmenistan, this arbitration was initiated by the Claimant, only to blame Turkmenistan for its own failure to perform its own undertakings.
The Tribunal dismissed the claims of the Claimant "in their entirety for lack of merit." The Tribunal analyzed Article VII(2) of the Turkey-Turkmenistan BIT that requires submission of the dispute first to the local courts, which the tribunal did not have the consensus to as to whether this provision should be dealt with as to jurisdiction or admissibility of the claims. Later on, the Tribunal mainly examined whether the works of the Claimant would qualify as an investment under the said BIT, and whether they are contractual or treaty claims and, finally, the availability of substantive protection standards for the claims of Ickale.
The Interpretation of Article VII(2) of the Turkey - Turkmenistan BIT
The Article VII(2) of the Turkey - Turkmenistan BIT is often discussed in the disputes between Turkish construction companies and Turkmenistan. According to this Article, the investor is required to, or may submit, the dispute first to local courts, and only if no decision is reached within a year, the investor may refer its claim to international arbitration.
Ickale claimed that this provision is a kind of fork-in-the road clause, which entitles the investor to choose either submitting the dispute to the local courts or to investment arbitration, while Turkmenistan argued that this provision is a kind of domestic litigation requirement. The arbitral tribunal examined the Russian, English, and Turkish versions of the BIT, and also heard the Turkish state employees who took roles in drafting the BIT in order to determine the exact will of the state parties.
The majority of the tribunal considered such requirement as to admissibility of the claims, ruled that the requirement to submit to local courts under Article VII(2) is mandatory, and that Içkale had not satisfied the requirement; however, the case is admissible since the Turkmen state entities for which Ickale served as contractor had initiated claims before the local courts. According to the majority of the tribunal, it is sufficient to have the dispute referred to local courts by either party. In his partial dissenting opinion, Phillippe Sands, QC, opined that the claimant's failure to comply with the requirement renders the tribunal without jurisdiction.
The Nature of the Works as "Investment" and the Claims as "Contractual Claims" or "Treaty Claims"
As to the jurisdiction of the tribunal, it is also examined whether the works performed would qualify as investments within the meaning of Article 25 of the ICSID Convention and Article I(2) of the Turkey – Turkmenistan BIT, and whether the claims are "contractual claims" or "treaty claims."
Departing from the three criteria identified by the decision on jurisdiction of the Salini Costruttori S.p.A., and the Italstrade S.p.A. v. Kingdom of Morocco case that are the contribution of capital, certain duration and assumption of risk, and considering the scale, duration, and number of the projects, and the commitment of capital by the Claimant in their performance, the Tribunal concluded that the Claimant must be considered to have made an "investment" in Turkmenistan.
However, the Tribunal did not explicitly decide whether the claims are contract claims or treaty claims. Instead, the Tribunal considered these issues with the merits of the claims of Ickale.
Availability of the Substantive Protection Standards
As to the merits, the arbitral tribunal analyzed the allegations of the Claimant based on the substantive protection standards, such as fair and equitable treatment, full protection and security, non-discrimination and umbrella clause, as well as protection against unlawful expropriation. The Claimant argues that by operation of the most favoured nation clause in Article II of the Turkey – Turkmenistan BIT, and the non-derogation clause in Article VI of the BIT, it can rely on such standards set out in other bilateral investment treaties concluded by Turkmenistan. The Respondent objects to the claims for implementation of such standards, since the said BIT does not contain them, except for the protection against unlawful expropriation.
The majority of the arbitral tribunal rejected the claims of Ickale "in their entirety for lack of merit." In her dissenting opinion, Carolyn B. Lamm disagreed with the majority regarding one specific expropriation claim of Ickale, and concluded that the directive of Supreme Court of Turkmenistan was excessive and resulted in unlawful expropriation considering the seizure of all of Claimant's machinery and equipment in Turkmenistan significantly in excess of any penalties. According to her, the Supreme Court's directive was "beyond what was necessary to recover the delay."
Consequently, the Tribunal concluded that the claims of Ickale fall within the Tribunal's jurisdiction and are admissible, and that the Claimant has made an "investment" within the meaning of Article 25 of the ICSID Convention and Article I(2) of the Turkey-Turkmenistan BIT; however, the claims are dismissed in their entirety for lack of merit. Furthermore, the Tribunal ordered the Claimant to pay 20% of the legal and expert fees and expenses of Turkmenistan, which amounts to approximately USD 1.75 million. Considering the discussions made by the arbitral tribunal, this decision will be considered as an important jurisprudence regarding the files to which Turkish investors are party.
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