As an element of international trade practice, foreign investments are of great importance. Most actors in international trade conduct their investment activities in foreign countries. However, the legislation and the political authorities of the countries where the investments are to be made may cause incertitude for foreign investors. In order to avoid such incertitude and encourage investment, states conclude bilateral or multilateral agreements on the protection of investments and the contracting states undertake to protect the rights of investors with regards to investments made in their countries.
Multilateral Protection of Investments
In addition to the bilateral agreements between the states, foreign investments are also protected by multilateral agreements, such as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("Convention"). The World Bank initiated the formulation of the Convention, and it was submitted to its member governments for their consideration with a view to its signature and ratification. The Convention entered into force on October 14, 1966, after being ratified by 20 countries.
The Convention established an institution for the settlement of disputes, which is the International Centre for the Settlement of Investment Disputes ("ICSID" or "Centre") based in Washington, D.C. In accordance with the provisions of the Convention, ICSID provides facilities for the conciliation and arbitration of investment disputes between contracting states and nationals of other contracting states.
The provisions of the Convention are complemented by the Regulations and Rules adopted by the Administrative Council of the Centre pursuant to Article 6(1)(a)–(c) of the Convention. ICSID Regulations and Rules also comprise Rules of Procedure for Conciliation ("Conciliation Rules") and Rules of Procedure for Arbitration ("Arbitration Rules"). The latest amendments to ICSID Regulations and Rules adopted by the Administrative Council of the Centre entered into effect on April 10, 2006.
The Centre's Jurisdiction is defined in Article 25(1) of the Convention as follows:
"The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre."
However, a legal entity established in the country of the contracting state which is party to the dispute shall be treated as a foreign investor if said legal entity is under the control of nationals of another contracting state (clause (b) of Article 25(2)).
Additionally, the dispute should be a legal dispute arising from an "investment". However, the notion of "investment" is not defined in the Convention; though contracting states do have the option to stipulate in advance the class or classes of disputes they will and will not consider submitting to the jurisdiction of the Centre (Article 25(4)). Disputes arising from issues other than investment do not fall within the jurisdiction of the Centre. Therefore, the nature of each dispute must be carefully reviewed in order to determine whether or not it falls within the Centre's jurisdiction.
With regards to ICSID's jurisdiction, a recent case known as "the Libananco Case", filed against the Republic of Turkey, should be mentioned. This case is an important example of the issues examined when determining if a dispute falls within ICSID's jurisdiction. In this case, Libananco (Libananco Holdings Co. Limited), a Cypriot company, filed a lawsuit against the Republic of Turkey before ICSID, citing the unjust seizure of two Turkish utility companies - Cukurova Elektrik Anonim Sirketi ("CEAS") and Kepez Elektrik Turk Anonim Sirketi ("Kepez") - of which Libananco is a shareholder. Libananco claimed that the Republic of Turkey had breached the Energy Charter Treaty. However, the arbitral tribunal decided it had no jurisdiction over the case since Libananco had not proved that it owned CEAS and Kepez before the date of seizure, which means Libananco could not be presumed a foreign investor as of that date.
The Settlement of Disputes
Investment disputes may be settled through either conciliation or arbitration. Conciliation proceedings are conducted in accordance with the Conciliation Rules, which comprise of 34 articles. The Conciliation Rules regulate issues such as the establishment and working of the commission (including representation of the parties, the appointment, displacement and disqualification of conciliators), procedural languages, the submission of the parties' arguments, hearings, closure of the proceeding and preparation and communication of the report to the parties.
Arbitration proceedings are conducted in accordance with the Arbitration Rules which comprise of 56 articles. Much like the Conciliation Rules, the Arbitration Rules regulate issues such as the constitution of the arbitral tribunal, representation of the parties, the appointment/displacement of arbitrators, written and oral procedures, the examination of witnesses and experts, provisional measures, rendering of the award, and annulment and stay of enforcement of the award.
The Rapport between Turkey and the Convention
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.
According to ICSID's official website, the Republic of Turkey is or has been party, as respondents, to eight disputes (both pending and concluded disputes). There are also some Turkish companies that have initiated legal proceedings before ICSID against other contracting states, especially for disputes arising from construction activities.
The fact that Turkey is party to the Convention encourages both foreign investors who may invest in Turkey and Turkish investors who may invest in other contracting states. The Convention protects the rights of foreign investors. Therefore, for Turkish investors who may invest abroad, it may be appropriate to consider whether the country where the investment will take place is a contracting state to the 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.