Turkey: ICSID Arbitration In Turkey

Last Updated: 6 October 2009
Article by Bilgin Tiryakioglu

The settlement of investment disputes by arbitration is becoming accepted as an important and necessary step in the creation of an environment friendly to investors. Settlement of such disputes in a neutral forum, within a reasonable time frame and with awards that are enforceable all combine to produce a proper legal framework for investments. Host governments have used national legislation to encourage foreign investments. However, host states are subject to political, economic and even ideological pressures, which may influence their commitment to foreign investments. Bilateral Investment Treaties (BITs) are agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other's territories, that enables an increase in the level of commitment of the hosting state to the international level. For example, most BITs guarantee for international investors fair and equitable treatment, protection from expropriation, free transfer of capital and income and full protection and security. Perhaps most importantly, many BITs allow Alternative Dispute Resolution, whereby an investor can have recourse to international arbitration, often under the auspices of the International Centre for Settlement of Investment Disputes (ICSID). International agreements afford investors greater protection, where settlement of disputes by arbitration an important element of such agreements.

ICSID provides a specialized international method for investment dispute settlement and awards which can be enforced in any of the current 155 signatory states, in the case of ARB procedure where the ICSID rules are followed, as if it were the decision of its own courts (Washington Convention, Article 54). With such international agreements investors can obtain strong international protection for different aspects of investments, including settlement of investment disputes by arbitration between a host state and a foreign investor. Turkey has signed 80 BITs with different countries and 64 of them have entered into force. Furthermore, Turkey ratified the Energy Charter Treaty (ECT) that includes a provision regarding ICSID arbitration in 2001. Due to the steps taken by Turkey to create a more appropriate legal climate for investments during 90's, foreign investors have brought six arbitration cases before the ICSID against Turkey since 2002.

In an investment dispute which Turkey is party as a host state, a foreign investor has two alternative procedures to initiate an ICSID case against Turkey. These are ICSID Arbitration Rules (ARB Procedure) or ICSID Additional Facility Rules (AFR Procedure). Investors usually prefer ICSID ARB procedure, if two conditions are met for initiating an arbitration case. First, both host and home state (investor's state) should be party to the Washington Convention. Second, parties to the investment dispute should give their consent to the ICSID arbitration. Initiating ARB procedure is a more beneficial procedure than any other arbitration process for the investors because the arbitration award is enforceable in any country that is party to the Convention. Investors may prefer the AFR procedure for bringing a case before ICSID against Turkey when they are not eligible to initiate arbitration according to ARB procedure. In AFR procedure, unlike the ARB procedure, the arbitration award given by an ICSID tribunal cannot be recognized and enforced automatically in any country that is party to the Washington Convention. Despite enforcement difficulties, investors may follow AFR procedure for different reasons. For example, an investor may initiate the AFR procedure against Turkey in cases where his state is not party to the Washington Convention. Since there is no automatic enforcement in this process, requirements of Turkish Law for the enforcement of arbitral awards have to be met.

Mechanisms for Initiating ICSID Cases Against Turkey

The first mechanism (the ICSID arbitration clause in a contract between Turkey and the investor) has not been used so far, which makes the ICSID arbitration available. This was because of the legal obstacles to inserting international arbitration clauses in such contracts (so-called 'concession contract') until early 2000. In fact, majority of those contracts were originally domestic contracts before 2000, and were signed between Turkey and Turkish investors. After having signed those concession contracts, the Turkish investors transferred their share to foreign investors in order to make the disputes international. By doing so, they also made possible the ICSID arbitration for those disputes.

The second legal mechanism is found in the bilateral investment treaties signed between Turkey and the investor's state. As mentioned before, if a BIT provides ICSID arbitration, it means that contracting states give their consent to the ICSID arbitration by the BIT provision. In most of the cases against Turkey, ICSID arbitration process has been initiated by using BIT's between Turkey and the investor's State. For example, in the case of PSEG Global v. Republic of Turkey, the US investor initiated ICSID arbitration process through the second mechanism, which was the BIT between Turkey and the US. In this case, there was no ICSID or any other arbitration clause in the concession contract between Turkey and US investor. Another good example of this mechanism is in Saba Fakes v. Republic of Turkey. In this case, a Dutch investor who took over some shares of a Turkish investor relied on the ICSID arbitration provision in the BIT between Turkey and the Netherlands. In Motorola v. Republic of Turkey, the US investor brought the dispute before the ICSID through the provision in the BIT between the US and Turkey.

The third legal mechanism is multilateral international conventions. In this situation; investors cannot rely on BIT's simply because there is no BIT between Turkey and his state. Sometimes, even if there is a BIT between Turkey and the investor's State, an investor may prefer to rely on a multilateral convention such as the ECT to which his state and Turkey are party. As a multilateral convention, ECT provides international arbitration (including ICSID) for the settlement of energy investment disputes. In three arbitration cases against Turkey before ICSID, the foreign investors relied on the ECT to which Turkey and their states are party. In the Libananco case, there was neither a BIT between Turkey and the investor's State nor a contract between the investor and Turkey. The investor relied on article 26 of ECT, because both states (Turkey and investor's state) were party to the ECT. In Cementownia and Europe Cement Investment, the investors relied on Article 26 of the ECT. In both disputes arising out of an energy investment, the investors' state (Poland) was not party to the Washington Convention, however the Polish Investors, by relying on the reference in Article 26 of ECT, had the opportunity to initiate ICSID arbitration against Turkey pursuant to the ICSID AFR procedure.

Being a party to the Washington Convention does not mean that Turkey gives its consent to ICSID arbitration. Consent can usually be given by an investment contract, a BIT, or through the ECT. Although consent can be also given by a provision in national investment legislation, this is not relevant for Turkey since Turkey prefers international conventions to national investment legislation in this respect. However, being a party to the Washington Convention means that Turkey should consider carefully the effects of multilateral conventions which includes ICSID arbitration. Otherwise Turkey would deal with unexpected ICSID cases by investors whose states are not party to the ICSID convention. Since multilateral conventions may give an opportunity for foreign investors to have recourse to ICSID AFR arbitration, investors can easily initiate ICSID AFR procedure against Turkey, even in cases when their state is not a contracting state of the Washington Convention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.