Turkey: Consent To Arbitrate In Investment Arbitration

Last Updated: 20 October 2016
Article by Fatih Işık

Introduction

Arbitration is an alternative dispute resolution method based on consent of the parties, regardless of whether it is a commercial or investment arbitration. A dispute may be brought to arbitration only where the parties have consented to arbitration. In commercial arbitration, the parties consent to arbitration through the execution of an arbitration agreement as a separate agreement, or as an arbitration clause within the underlying contract. In an investment arbitration where the parties are always a state (or a state entity) on the one side, and a foreign investor on the other, the parties must have consented to arbitration through an arbitration agreement, or through other methods, which will be explained, below.

The Methods for Consenting to Arbitrate

In an investment arbitration, the parties may consent to arbitration through (i) arbitration agreements between the state and the investor, (ii) bilateral investment treaties (BITs) between the host state and the state of the investor, (iii) multilateral investment treaties to which the host state and the state of the investor are parties and (iv) national legislation of the host state. Except for the first method, the host states offer their consent to arbitrate to the investors, and the arbitration agreement is perfected through the acceptance of that offer by the investor.

Consent through Arbitration Agreements

As is the same for commercial arbitrations, the parties in investment arbitrations, namely the host state and the investor, may conclude arbitration agreements through a separate arbitration agreement, or stipulate an arbitration clause within the underlying contract. In such cases, it will be accepted that the parties have consented to arbitration, as well as the legal problems that may arise for arbitration agreements with regard to commercial disputes may also arise in investment disputes, such as the scope of the agreement, capacity and authority of the parties, arbitrability, etc. For instance, if investment operations involve a complex scheme of successive agreements and the arbitration clause is not stipulated within all of the agreements, it may be discussed whether the arbitration clause is stipulated only for the specific agreement or to the whole of the investment.

Consent through the BITs

Consent through BITs has become accepted practice and is, in general, the basis for the jurisdiction of investment arbitration courts in the majority of cases. In such methods, the state parties to the BIT offer their consent to arbitration to the investors who are nationals of the other contracting party, and the agreement is perfected once the investor provides its acceptance. It is established practice that an investor may accept the offer by instituting arbitration proceedings as provided within the relevant BIT. In this instance, the result is an agreement to arbitrate although it is achieved indirectly and often without direct contact between the parties prior to the institution of proceedings. However, it should be underlined that all references to arbitration within the BITs do not constitute consent to arbitration and, in some cases, it is only a promise to consent in the future.

Consent through Multilateral Treaties

The states may provide their consent to investment arbitrations through multilateral treaties that provide investment arbitrations for the settlement of disputes between a contracting party and a national of another contracting party. For instance, Article 1122 of the NAFTA and Article 23(3)(a) of the Energy Charter Treaty provide offers of the contracting states to agree to arbitrate. It should be underlined that the ICSID Convention1 does not provide the offer of the contracting states to consent, and being a contracting party to ICSID convention is not merely an offer: A separate declaration of consent is required for the contracting parties. Such point is clearly explained within the Preamble to the Convention as follows: "No Contracting State shall, by the mere fact of its ratification, acceptance or approval of this Convention, and without its consent, be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration."

Consent through National Legislation of the Host State

The host states may offer their consents to agree to investment arbitration with foreign investors through its legislation, especially legislation with regard to foreign investments. It may be stated within the legislation that disputes between the state and the foreign investor with regard to its investment will be settled through investment arbitration. As explained above, the arbitration agreement will be perfected through the acceptance of the investor, and such acceptance may be provided merely by institution of arbitration proceedings. It should be noted that the text of the legislation regarding the offer of the host state should be carefully reviewed since each reference to investment arbitrations within the national legislation would not be deemed as an offer to arbitrate. For instance, if the national legislation only entitles the public authorities to execute arbitration agreements, this would not amount to a consent to jurisdiction of an investment arbitration, and would require a separate declaration of consent from the host state's side.

The Scope of the Consent and Its Interpretation

As with commercial arbitration agreements, investment arbitration agreements that are concluded by either of the above-noted methods would require determination of its scope, and should be interpreted. The consent of the host state may be subject to certain conditions, time limits, formalities, or other restrictions. For instance, the scope of the consent to arbitrate under Article 1116 of the NAFTA is limited to claims arising from alleged breaches of the NAFTA, itself. Another consent to arbitration may only be concerned with expropriations. It is almost common practice for the host states that the claims of the investor claimants are out of scope of the consent to arbitrate. However, it may be opined that investment arbitration panels are open to interpret the consent extensively, and reject the arguments for restrictive interpretations.

As well, the arbitration may also be held subject to preliminary conditions. For instance, the investor may be obliged to seek amicable settlement, or submit the dispute first to the courts of the host state. Moreover, the consent to arbitrate may be a "fork in the road" provision, which stipulates that the investor must apply either to domestic courts or to international arbitration courts, but the choice is final: The investor cannot benefit from a second choice to submit its dispute to another authority.

Conclusion

The disputes arising from investments made by foreign investors within a host state may be submitted to arbitration courts, only if the host state and the investor have an arbitration agreement, as is the same for commercial arbitrations. However, in investment arbitrations, the arbitration agreement is mostly executed indirectly between the parties. In general, the host states offer their consent, and the investor provides its acceptance at a further stage. The legal problems that may arise for arbitration agreements regarding commercial disputes may also arise for those regarding investment disputes and, of course, there may be some additional legal discussions that are specific to investment arbitrations, and the consent of the host states should be carefully reviewed.

Footnote

1 The Convention was ratified by Turkey on 27.05.1988 by Act No. 3460, which is published in the Official Gazette dated 02.06.1988 and numbered 19830, and with Resolution No. 88/13325 of the Council of Ministers dated 07.10.1988, which is published in the Official Gazette dated 06.12.1988 and numbered 20011.

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