ICSID Arbitration in Turkey
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
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.
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
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
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.
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.
Prof. Dr. Bilgin Tiryakioglu