(i) The requirement of written notice of suspension

143. While Article X(2) of the Treaty contains a provision regarding denunciation, there is no provision in the Treaty concerning suspension. The matter therefore falls to be resolved by application of general international law. The question is whether any of the circumstances invoked by the Respondent—the occurrence of armed conflict/hostilities or the suspension of diplomatic relations between Turkey and Syria—is of itself capable of suspending the Treaty, without notice to that effect. In the Tribunal's view, the answer is in the negative.

144. The Tribunal notes at the outset that Syria is a party to the VCLT but Turkey is not. However, both sides accept that the relevant provisions of the VCLT reflect customary international law and are applicable in the relations between Turkey and Syria.Footnote ¹⁰⁰ Under Articles 65(1) and 67(1) of the VCLT,Footnote ¹⁰¹ suspension of the Treaty would require Syria to give Turkey written notice of its intention to suspend the Treaty.Footnote ¹⁰² However, as noted above, no such notice was given by Syria at any point.Footnote ¹⁰³

(ii) No ipso facto suspension in present circumstances

145. Although the absence of notice is dispositive of the Respondent's argument, the Tribunal is not persuaded in any event that the Treaty may be said to have been suspended ipso facto.

146. The Tribunal considers that the contemporary customary international law rule on the impact of armed conflict on treaties is accurately codified in Article 3 of the 2011 Draft ILC Articles on the Effect of Armed Conflict on Treaties (the 2011 ILC Articles). This provides, in relevant part, that the “existence of an armed conflict does not ipso facto terminate or suspend the operation of treaties as between State Parties to the conflict”. As may be seen in the sources cited by the ILC in support of this provision, Article 3 reflects the predominant State practice and scholarly authority.Footnote ¹⁰⁴ “Armed conflict” in the 2011 ILC Articles means “a situation in which there is resort to armed force between States or protracted resort to armed force between governmental authorities and organized armed groups”.Footnote ¹⁰⁵ This characterization applies to the situation in Syria. It is of no moment in that regard if the situation is to be classified as an “international” armed conflict (as the Respondent contends) or a “non-international” armed conflict (as the Claimants contend).

147. The effect of the general rule in Article 3 of the 2011 ILC Articles is that a further inquiry is necessary. As noted in the ILC's commentary, “in principle, the first step of the inquiry should be to establish whether the treaty so provides [ie, for its continued operation or otherwise], since it will, depending on the terms of the provision and its scope, settle the question of continuity”.Footnote ¹⁰⁶ Article 4 of the 2011 ILC Articles thus provides that “[w]here a treaty itself contains provisions on its operation in situations of armed conflict, those provisions shall apply”. The relevant treaty provisions are of course subject to the normal rules of treaty interpretation. There is no requirement that they should expressly stipulate that they operate in situations of armed conflict.Footnote ¹⁰⁷

148. Turning to the Treaty, it does not contain a general provision authorizing derogation at times of armed conflict. To the contrary, several of its provisions indicate that the Treaty is intended to operate in situations of armed conflict. In particular, the “full protection at all times” standard in Article II(2)Footnote ¹⁰⁸ and the “war losses” clause in Article IV(3)Footnote ¹⁰⁹ recognize that the Treaty will continue to apply during times of armed conflict. Article IV(3) refers to “war”, “insurrection”, and “civil disturbance”, thus capturing both inter-State and internal forms of conflict; and it makes no distinction or qualification for the event that the conflict may arise between the two States Parties, rather than between a State Party and a third State.Footnote ¹¹⁰ These are important provisions which cannot be ignored in the present analysis.

149. This conclusion is further supported by considering the factors relevant in ascertaining a treaty's susceptibility to apply at times of armed conflict. In that regard, Article 6 of the 2011 ILC Articles refers “to all relevant factors, including: (a) the nature of the treaty, in particular its subject matter, its object and purpose, its content and the number of Parties to the treaty . . .” An Annex to the Articles contains an “indicative list of treaties” whose subject-matter “involves an implication that they continue in operation, in whole or in part, during armed conflict”.Footnote ¹¹¹ The list includes “[t]reaties of friendship, commerce and navigation and agreements concerning private rights”. Bilateral investment treaties are, of course, a modern-day evolution of friendship, commerce and navigation treaties. The ILC also specifically refers to “bilateral investment treaties” as falling within the scope of “agreements concerning private rights”.Footnote ¹¹² The Tribunal respectfully agrees with the ILC's approach, considering it to be consistent with other rules of general international law which protect private rights at times of uncertainty or dispute in international relations, such as the absence of international recognition or changes in boundaries (as the Tribunal indicates at paragraph 158 below).

150. There is therefore, at the very least, a presumption that the Treaty did continue being in effect after April 2011. This presumption could be rebutted if the Treaty's provisions made it clear that the Treaty was intended to be suspended in periods of armed conflict. However, as discussed in paragraph 148 above, several provisions in the Treaty indicate, to the contrary, the States Parties’ intent that it continue to apply at times of armed conflict.

(iii) Suspension of diplomatic relations immaterial

151. The Tribunal is also unable to agree with the Respondent's suggestion that its suspension of diplomatic relations with Turkey entailed an ipso facto suspension of all treaties between the two States.Footnote ¹¹³

152. As Article 63 of the VCLT provides, “[t]he severance of diplomatic or consular relations between parties to a treaty does not affect the legal relations established between them by the treaty except insofar as the existence of diplomatic or consular relations is indispensable for the application of the treaty”. Here, the Respondent did not assert that (and in any event it is difficult to see why) the existence of diplomatic or consular relations between Turkey and Syria is indispensable for the application of the Treaty.

153. A well-known illustration of the application of the principle reflected in Article 63 of the VCLT relates to the 1955 Treaty of Amity, Economic Relations, and Consular Rights between the United States and Iran. This treaty has been held by the International Court of Justice (the ICJ) to have continued in force despite the breakdown in diplomatic relations between the two countries. As the ICJ explained in the first of a series of cases under this treaty,Footnote ¹¹⁴ United States Diplomatic and Consular Staff in Tehran:

(iv) The Respondent's reliance on a decision of the Eritrea-Ethiopia Commission

154. The Tribunal has also carefully considered the decision of the Eritrea-Ethiopia Claims Commission relied upon by the Respondent in support of its argument for an ipso facto suspension of the Treaty.Footnote ¹¹⁶ In the Tribunal's view, that decision (which pre-dates the 2011 ILC Articles) does not advance the Respondent's case.

155. In that case, the treaty in question was a 1993 Protocol between Eritrea and Ethiopia under which Ethiopia had undertaken to pay pensions to former Ethiopian State employees who, following Eritrea's independence, had become Eritrean nationals and residents. The Claims Commission had to consider the impact that the 1998–2000 armed conflict between the two States had on Ethiopia's obligations under the Protocol. After noting that “modern doctrine does not provide settled guidance on significant points” related to this issue, the Commission observed that “[t]he parties’ presumed intent is generally seen as a key factor in determining the treaty's wartime status”.Footnote ¹¹⁷ It acknowledged that, by their terms, some treaties clearly apply during hostilities (citing as examples the Hague Regulations and the 1949 Geneva Conventions).Footnote ¹¹⁸ It also recognized that the “nature and purpose” of some treaties may “reveal an intention that the treaty continues to operate” (citing as an example “treaties confirming private rights to land”).Footnote ¹¹⁹ As for the 1993 Protocol, the Commission held that when “the intention to maintain a treaty in operation during hostilities is not plainly apparent from the text or the surrounding circumstances”, then the “parties should be presumed to intend that such treaties should be at least suspended during the hostilities”.Footnote ¹²⁰

156. As already noted at paragraph 148 above, the present Treaty does in fact make it “plainly apparent” that it continues to operate at times of armed conflict.

157. In addition, the 1993 Protocol which the Commission considered had a fundamentally different nature from the present Treaty. In that regard, the Commission concluded that the two Contracting States would not have intended for one of them to continue to pay State official/employee pensions to nationals of the other during a period of armed conflict. This obligation was intimately linked to Ethiopia's statehood—the very thing that the armed conflict imperilled.

158. By contrast, the Treaty protects investors’ economic rights, in essence property rights, which in principle—as the Eritrea-Ethiopia Claims Commission indeed recognized—transcend changes in sovereignty or statehood.Footnote ¹²¹ The States Parties’ obligations to promote and protect such rights as qualifying “investments” under the Treaty are not inexorably contingent upon the absence of armed conflict between the States Parties. The authority adduced and codified by the ILC bears this out clearly, as already noted above.

*

159. For the foregoing reasons, the Tribunal concludes that the Treaty was not suspended ipso facto.

160. For the sake of completeness, the Tribunal notes that, in its written pleadings, the Respondent had also argued that it had (tacitly or constructively) suspended the Treaty as a countermeasure against conduct by Turkey that the Respondent alleged was internationally wrongful.Footnote ¹²² However, at the hearing, the Respondent confirmed that it was no longer relying on the doctrine of countermeasures as a foundation for the suspension of the Treaty.Footnote ¹²³ Accordingly, this issue does not arise for consideration.

(i) The English-language version of the Treaty prevails

200. The Tribunal starts its analysis by recalling that the Treaty was entered into in “the Turkish, Arabic and English languages”, all of which versions are “equally authentic”.Footnote ¹⁶³ The Treaty also provides that “[i]n case of any conflict of interpretation the English text shall prevail”.Footnote ¹⁶⁴ In order to establish whether there is in fact such a conflict, the Tribunal first considers the text of Article VII(2) in each of the three authentic versions.

201. The full text of Article VII(2) in the English-language version of the Treaty is set out at paragraph 11 above. The part material for present purposes reads as follows:

202. As for the Turkish-language text of Article VII(2), the parties rely on conflicting English translations, as set out below (with the key portion of the text italicized):

1. (i) The Claimants’ English translation: “If disputes cannot be settled in this way within six months following the date of the written notification mentioned in the first paragraph; and in the event that the investor concerned has brought the dispute before the courts of justice of the party to dispute and a final award has not been rendered within one year, the dispute can be submitted to the forums below as the investor may choose . . .”Footnote ¹⁶⁵

2. (ii) The Respondent's English translation: “If disputes are not resolved in this way for six months from the date of the written notification as outlined in paragraph (1), the disputed case shall be referred to the authorized court in the country hosting the investment, in case no decision is issued by this court for one year, the disputed case according to the investor's preference, shall be referred to [any one] [of the arbitration fora specified in Article VII(2)(a)–(c)]”.Footnote ¹⁶⁶

203. The Claimants’ English translation is more reliable than the Respondent's, as the latter is an indirect translation of the Turkish original text into Arabic and thence to English.Footnote ¹⁶⁷ Accordingly, the Tribunal will rely on the Claimants’ English translation.

204. As for the Arabic-language text of Article VII(2), there is no material difference between the parties’ respective English translations,Footnote ¹⁶⁸ which are set out below:

1. (i) The Claimants’ English translation: “Provided that the concerned investor has raised the dispute before the courts of justice of the party who is a party in the dispute and that a final award has not been issued in respect of the dispute within a year”.

2. (ii) The Respondent's English translation: “Provided the concerned investor has referred the dispute first to the courts of justice at the country that is a party to the dispute, and no final award has been issued within one year”.

205. The Arabic and Turkish texts address the issue of referral to domestic courts in different and conflicting terms. The use of the “in the event” phrase in the Turkish text indicates that referral of the dispute to the host State's courts is optional. By contrast, the Arabic version is clear that such referral is mandatory, as indeed the Claimants concede.

206. Given this “conflict of interpretation” between the Turkish and Arabic authentic texts, and in light of the Treaty provision that in such an eventuality “the English text shall prevail”, the Tribunal focuses on the interpretation of the authentic English text of Article VII(2).

(ii) The rules of the Vienna Convention on the Law of Treaties

207. As already noted, it is common ground that the interpretative process is to be conducted in accordance with the rules of the VCLT. Article 31 of the VCLT sets out the “general rule” of treaty interpretation in the following terms:

1. 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

   1. (a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;

   2. (b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

There shall be taken into account, together with the context:

1. (a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

2. (b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

3. (c) Any relevant rules of international law applicable in the relations between the parties.

A special meaning shall be given to a term if it is established that the parties so intended.

208. Article 32 of the VCLT provides for “supplementary means of interpretation” in the following terms:

1. (a) Leaves the meaning ambiguous or obscure; or

2. (b) Leads to a result which is manifestly absurd or unreasonable.

(iii) The meaning of the Article VII(2) proviso in the light of its object and purpose and the circumstances of its conclusion

209. Starting with the ordinary meaning of the proviso to Article VII(2), its formulation is peculiar. Both sides say that it contains surplus words which, on the face of the clause, can lend themselves to ambiguity and conflicting interpretations. The parties disagree, however, as to which these words are.

1. – The first possible interpretation is that the double conditional at the beginning of the proviso (“provided that, if”) is intentional, and thus the word “and” later in the sentence is strictly speaking unnecessary. On this reading, the word “and” may be ignored, such that the clause would read: “provided that, if the investor concerned has brought the dispute before the court of justice of the party to dispute, and a final award has not been rendered within one year”. The result would be that recourse to the local courts is optional.

2. – The second possible interpretation is that the word “and” is key and the double conditional is to be ignored as a drafting error. On this reading, the clause would read: “provided that, if the investor concerned has brought the dispute before the court of justice of the party to dispute and a final award has not been rendered within one year”. The result would be that recourse to the local courts is mandatory.

210. The interpretations offered by both sides acknowledge the syntactic or linguistic infelicity on the face of the clause. As the Claimants put it at the hearing, the English text is “not the hallmark of clarity” and “there is an infelicitous side” to its language.Footnote ¹⁶⁹ Similarly, the Respondent acknowledged that “the English language [text] is not clearly drafted” and contains a “double conditional” (ie, “provided that” and “if”) which is “misleading language-wise”.Footnote ¹⁷⁰

211. The Tribunal agrees with the parties that any ambiguity in the proviso results from a drafting infelicity rather than a more profound reason. The Tribunal has accordingly considered the wording of the proviso closely, in the light of its object and purpose within Article VII(2).

212. The first point to note is that Article VII(2) is not formulated to offer the host State's courts as an option additional to arbitration. Had that been the case, such an option would have been set out in a separate sub-paragraph (d). Rather, the Treaty assumes that the domestic courts of the host State are available and open to the investor for disputes with the State, and that the investor may choose to resort to them. The proviso therefore deals with the coordination of jurisdictions— ie, whether resort to the domestic courts excludes resort to the arbitral fora set out in Article VII(2)(a)-(c).

213. On the Respondent's own case, it is Turkey that proposed the inclusion of this proviso.Footnote ¹⁷¹ The Respondent does not suggest that it opposed the proviso. As noted above, the Turkish-language version of Article VII(2) is unambiguous. It uses the phrase “in the event” to refer to recourse to the domestic courts, thus clearly formulating this as a possibility rather than a mandatory requirement. While this circumstance does not of course prejudge the meaning to be given to the English- language version, it does indicate the moving party's intention to spell out in what circumstances an investor could refer a dispute to arbitration notwithstanding the investor's earlier choice to submit the dispute to the domestic courts. If that were not spelled out, the host State could well object to arbitration, notably on grounds of lis pendens. Article VII(2) deals with this issue by providing that in such circumstances recourse to arbitration remains possible in one eventuality: that the domestic courts have not rendered a final decision within one year of their being seised. It follows that if the investor has not submitted the dispute to the local courts, the Article VII(2) proviso is not engaged at all. It also follows that if a final decision has been issued, the investor may not submit the same claim to arbitration.

214. In the light of the foregoing, the Tribunal considers that the meaning and effect of the Article VII(2) proviso are clear, and its admittedly clumsy syntax is only a superficial difficulty. In construing a proviso, one must focus above all else on the terms of the relevant condition. Article VII(2) contains a double conditional which forms a compound conjunction: “provided that, if”. The proviso thus operates only “if the investor concerned has brought the dispute before the court of justice of the [State] party to dispute”. This main element drives the interpretation. It cannot be brushed aside or neutralized by drafting infelicities farther down in the sentence. Differently put, the Tribunal cannot legitimately ignore “if”, nor can it read it as “shall”, especially as it is immediately attached to the all-important “provided that” phrase.

215. This, then, leaves the word “and”, which features in the second part of the proviso: “and a final award has not been rendered within one year”. A grammarian would say that “and” is unnecessary: the sentence can operate without it. But, recalling that the Treaty was negotiated between two States for which English is a foreign language, “and” serves to indicate that the condition it introduces is linked to “provided that”. Thus, recourse to arbitration remains an option if the investor concerned has brought the dispute before the host State's courts, provided that the courts have not rendered a final decision within one year of being seised.

216. This reading is more satisfactory than the competing reading whereby “provided that” introduces a requirement to resort to local courts for at least a year. The Tribunal acknowledges that such requirements are to be found, on occasion, in investment treaties.Footnote ¹⁷² But the treaties in question use clear, mandatory terms to make prior recourse to domestic courts a precondition to resorting to arbitration, while Article VII(2) does not. As indicated above, the Tribunal considers that the Article VII(2) proviso serves to expand an investor's ability to resort to arbitration, rather than to condition it upon first giving the host State's courts an opportunity to resolve the dispute within one year.

217. To conclude, the Tribunal considers that Article VII(2) does not require an investor to have recourse to the domestic courts of the host State before commencing arbitration. The Tribunal reaches this conclusion primarily as a matter of textual interpretation (Article 31(1) VCLT), taking into account the circumstances of the conclusion of the provision (Article 32 VCLT).

(iv) The relevance of other tribunals’ decisions

218. The Tribunal is aware that the tribunals in the Kılıç and İçkale cases reached divergent conclusions regarding the interpretation of similar provisions in another treaty.Footnote ¹⁷³ These decisions were addressed by the parties at some length. However, the Turkey-Turkmenistan treaty at issue in those cases did not specify which of its two authentic versions—English or Russian—would prevail in case of conflict. In the face of conflicting English and Russian versions, the tribunals focused on the Russian-language version, finding that version to be clear in requiring recourse to the local courts as a precondition to arbitration.Footnote ¹⁷⁴ By contrast, in the present case, the Treaty provides that “[i]n case of any conflict of interpretation the English text shall prevail”. The Kılıç and İçkale decisions are therefore not germane in the present case.

(v) The negotiating history of the Treaty and the States Parties’ treaty practice

219. Bearing in mind the “supplementary means of interpretation” set out in Article 32 of the VCLT, the Tribunal specifically invited the parties to place on record, to the extent available, documents relating to the negotiating history of Article VII(2)—ie, travaux préparatoires in the broadest sense, such as joint negotiating records, minutes or protocols of negotiation, negotiating proposals put forward by either State Party, and even explanatory memoranda prepared by governments in the course of the conclusion or ratification of the Treaty. The parties did not produce such materials.

220. As for other circumstances relating to the conclusion of the Treaty, the Claimants referred to the Respondent's contemporaneous treaty practice.Footnote ¹⁷⁵ This establishes that the Respondent did not require mandatory recourse to Syrian courts as a precondition to arbitration in any other investment treaty it has concluded, before or after the present Treaty.Footnote ¹⁷⁶ For its part, the Respondent did not provide evidence from its treaty practice or any other source indicating a policy of imposing resort to its courts as a precondition to arbitration.

221. As already noted, the Respondent acknowledges that Turkey sought the inclusion of the proviso to Article VII(2).Footnote ¹⁷⁷ But this does not of itself establish that the proviso was intended to introduce a “mandatory” requirement, as the Respondent argues. As explained at paragraphs 212–214 above, the proviso does perform a useful function when read as optional.

*

222. In light of its interpretation of Article VII(2) of the Treaty, the Tribunal concludes that there was no impediment to the Claimants’ commencing these arbitration proceedings. The proviso in Article VII(2) is not engaged at all in this case. It is therefore unnecessary to decide the Claimants’ two alternative arguments based on the MFN clause or the alleged futility of recourse to Syrian courts. The Tribunal does note, however, that the Respondent has not asserted that it would have been possible for its courts to resolve the present dispute by “final award” within a year.

(i) Whether Article IV(3) excludes other Treaty protections

229. The Respondent contends that Article IV(3) is a “special” provision which excludes application of the Treaty's other, substantive protections in relation to losses “owing to war, insurrection, civil disturbance or other similar events”.Footnote ¹⁸¹ The Claimants retort that Article IV(3) contains an additional protection against such losses and does not have the exclusionary effect contended for by the Respondent.Footnote ¹⁸²

230. In light of the ordinary meaning of the terms of Article IV(3), interpreted in their context and in light of the Treaty's object and purpose, the Tribunal does not consider the Respondent's argument to be valid. In short, a lex specialis with exclusionary effect bears the hallmark of derogating from other provisions that are general by comparison. Article IV(3) lacks this necessary characteristic.

231. The plain meaning of Article IV(3) is that the host State must accord to foreign investors MFN treatment and national treatment, “whichever is the most favourable”, with regard to any measures it may adopt in respect of losses in certain circumstances. Doubtless the provision caters to specific circumstances, namely losses due to “war, insurrection, civil disturbance or other similar events”. But it does not necessarily follow from this specificity that the treatment due under Article IV(3) shall be the “sole” or “exclusive” treatment, and the text of Article IV(3) does not say so. Nor does Article IV(3) say that its application is “to the exclusion of” other provisions in the Treaty. Indeed, Article IV(3) does not even refer to other provisions in the Treaty. If the States Parties’ intent were that Article IV(3) would operate as an exclusion, exemption, or derogation clause, one would certainly expect them to have spelt out such a far-reaching result expressly.Footnote ¹⁸³

232. The Tribunal acknowledges that Article IV(3) does not state that it is “without prejudice” to other Treaty provisions, including Article IV(1)–(2). But in the Tribunal's view, this was hardly necessary for the satisfactory operation of the Treaty. To the extent that other Treaty provisions may also be engaged in circumstances of “war, insurrection, civil disturbance or other similar events”, these will apply in complementary manner.

233. Starting with Article IV, this is entitled “Expropriation and Compensation” and comprises three paragraphs. The first two deal with the circumstances of permissible expropriation (paragraph (1)) and the calculation and payment of compensation (paragraph (2)). Neither of these two paragraphs states that it is “subject to” paragraph (3) or that it is inapplicable at times of war, insurrection, and the like. The Tribunal can well see that an investor should not be entitled to double recovery for a single harm, for example an expropriatory war-requisition. But that is not to exclude that there may be two separate legal bases for compensation of an investor's harm, respectively under paragraphs (1)–(2) and (3). Avoiding double recovery is a matter of sensible coordination of overlapping provisions rather than the a priori exclusion of one provision in favour of the other.

234. Turning to consider other provisions in the Treaty, the Tribunal is unable to agree that they are to be regarded as excluded by the operation of Article IV(3). Notable among them is Article II(2), which sets out, among other duties, a duty of “full protection” of investments. Nothing in Article II(2) suggests that it ceases altogether to apply at times of war or armed conflict. Indeed, it is at such times that protection may be needed the most. That an investor may also be entitled to benefit from “measures [the host State] adopts in relation to [war, etc] losses” under Article IV(3) does not detract from the State's duty to afford protection under Article II(2) in the first place. The two duties are complementary. If their application overlaps on the facts of a certain case, the provisions must, again, be coordinated in a sensible way.Footnote ¹⁸⁴

235. In sum, the Tribunal sees no foundation in the Treaty for concluding that the only protection available in circumstances of “war, insurrection, civil disturbance or other similar events” is under Article IV(3). Again, it would have been straightforward for the States Parties to say so if that had been their intention, but no such intention is apparent in the Treaty. As the ILC put it, “[f]or the lex specialis principle to apply . . . there must be some actual inconsistency between [the relevant provisions], or else a discernible intention that one provision is to exclude the other”.Footnote ¹⁸⁵ Neither of these tests is met under the Treaty.

236. The conclusion that the Tribunal has reached under the Treaty accords with those reached by other investment-treaty tribunals which considered war-losses clauses as additive to those treaties’ other protections.Footnote ¹⁸⁶ For example, in CMS v Argentina, the tribunal rejected the contention that Article IV(3) of the US-Argentina BIT, which is similar to Article IV(3) of the Treaty,Footnote ¹⁸⁷ excluded the application of other protections in that BIT. It held:

237. In Total v Argentina, the tribunal considered a similar treaty provision,Footnote ¹⁸⁹ and held that it had “an opposite purpose to that of an exculpatory clause”. Rather, such provisions grant “an additional guarantee in respect of situations in which the host State, even if not internationally obliged to do so, has provided for compensation for the losses suffered due to certain events to its own nationals or investors of third States”.Footnote ¹⁹⁰ Numerous other tribunals have reached similar conclusions on the point of principle that war-losses clauses may complement other protections in investment treaties.Footnote ¹⁹¹

238. The Tribunal turns to consider the relationship between Article IV(3) and the general most-favoured-nation clause in the Treaty, Article III(2), at paragraphs 256 et seq below, in connection with the Claimants’ claim under the latter provision.

(ii) Whether the Respondent breached Article IV(3) of the Treaty

239. The Claimants argue that the Respondent breached Article IV(3) of the Treaty (already quoted at paragraph 227 above) by failing to extend to them the treatment due to Italian investors under Article 4 of the Syria-Italy BIT.Footnote ¹⁹² The argument is that Italian investors are “investors of any third country” in terms of Article IV(3), and that since under Article 4 of the Syria-Italy BIT Syria “shall offer adequate compensation in respect of [war, etc] losses”, Syria was obliged to offer adequate compensation also to the Claimants but failed to do so.

240. The Respondent denies it had any such duty under Article IV(3).Footnote ¹⁹³

241. The Tribunal agrees with the Respondent.

242. Article IV(3) calls for a relative standard of treatment.Footnote ¹⁹⁴ It is engaged in case of “measures [that the host State] adopts in relation to . . . losses” suffered by investors “owing to war, insurrection, civil disturbance or other similar events”. Whatever such measures, if any, Syria has adopted for its own nationals or those of third States, are also to be made available to Turkish investors under the Treaty.

243. The term “measures” denotes laws, regulations, and administrative or material acts that the host State from time to time “adopts”. It has the same significance as in Articles II(2) and IV(1), which refer to “measures” affecting investments, ie acts that the State has taken.Footnote ¹⁹⁵ As the ICJ has held, “in its ordinary sense the word [‘measure’] is wide enough to cover any act, step or proceeding”.Footnote ¹⁹⁶ As a matter of fact, there is no evidence that Syria has adopted specific laws, regulations, or other measures to redress the losses of Italian investors arising from the conflict. The Claimants themselves do not argue otherwise.Footnote ¹⁹⁷

244. The Claimants’ claim therefore rests on reading the term “measures” in Article IV(3) as encompassing the international-law entitlement to receive an offer of “adequate compensation” under Article 4 of the Syria-Italy BIT (quoted at paragraph 276 below). That argument conflates the notion of “measures” with the distinct notion of “treatment”. The latter notion is used in several provisions in the Treaty,Footnote ¹⁹⁸ including Article IV(3) itself, and is a broader and more abstract notion: treatment materializes through measures. As another tribunal put it, “the term [‘treatment’] typically carries with it the sense of how a State . . . regulates, protects, or otherwise interacts with specified actors, whether public or private”.Footnote ¹⁹⁹ Thus, for example, Article II(2) provides for “fair and equitable treatment”, specifically enjoining impairment of investments “by unreasonable or discriminatory measures”. While it is true that Italian investors have an entitlement to certain treatment under Article 4 of the Syria-Italy BIT, so long as Syria has not taken specific measures to give effect to such entitlements, Article IV(3) of the Treaty is of no avail to the Claimants.

245. In conclusion, the Tribunal rejects the Claimants’ argument that Article IV(3) of the Treaty affords them a right to “adequate compensation” under Article 4 of the Syria-Italy BIT. In consequence, the Tribunal rejects the Claimants’ claim that the Respondent has breached Article IV(3).

(ii) Article IV(3) does not displace Article III(2)

256. The Respondent argues that if the Claimants were to be able to rely on Article III(2), this would amount to “deleting” Article IV(3), this provision being lex specialis to Article III(2).

257. In the view of the majority of the Tribunal, the argument cannot prosper, either at the level of principle or at the level of treaty interpretation.Footnote ²¹⁵

258. As a matter of principle, the very purpose of MFN clauses is to extend more-favourable treatment that is due under another instrument, whether a treaty or domestic law, in the stead of the treatment due under the basic treaty. Access to enhanced treatment by reference to another (“comparator”) treaty cannot be said to “delete” any provision of the basic treaty, because “[b]y its very nature, an MFN clause promises something better than what is provided in the [basic] treaty”.Footnote ²¹⁶

259. The Tribunal is also unable to accept that Article IV(3) is to be read as excluding by necessary implication Article III(2). Such a reading would lead to the result that investors under the Treaty would be entitled to the benefit of war-losses measures, if any had been adopted by the host State, but they would not be entitled to any broader treatment that the host State may have in fact accorded, or undertaken to accord, on whatever basis, to similarly situated investors of a third State or the host State. On such a reading, if investors of certain countries had been granted benefits over and above a generalized war-reparations programme—say, a choice between indemnification or restitution of property, or compensation in foreign currency that can be freely repatriated—these benefits would not be available to investors under the Treaty. One can see no compelling justification for such a reading.

260. Article III(2) and Article IV(3) both contain MFN obligations. Article III(2) is the broader provision, requiring that, “in similar situations”, MFN “treatment” be accorded to “investments established”. Article IV(3) provides for a highly specific form of MFN treatment, in extraordinary circumstances where “investments suffer losses . . . owing to war, insurrection, civil disturbance or other similar events”. There, the duty to extend MFN treatment extends only to “measures [which the host State] adopts in relation to such losses”. As may be seen from paragraph 244, extending the benefit of war-losses “measures” is a form of “treatment”. Compliance with Article IV(3) will therefore be consistent with the obligation under Article III(2): the two articles are entirely concordant.

261. It would be inimical to this concordance to treat Article IV(3) as making Article III(2) redundant. As already noted at paragraph 235, lex specialis requires more than just pointing to a more-specific provision. Far from being a mechanical rule of invariable application, lex specialis is an aid to interpretation whose “power is entirely dependent on the normative considerations for which it provides articulation: context, capacity to reflect State will, concreteness, clarity, definiteness”.Footnote ²¹⁷ Article IV(3) does not in terms indicate that it is exclusive of any other provision in the Treaty, nor does it need to be read in that way to be given effet utile. This Article is directed to an issue which may be debated as a matter of customary international law, namely whether war-losses programmes, which are sometimes discretionary, must be extended to foreign nationals on a footing of equality. Article IV(3) is therefore a non-discrimination provision with a highly specific purpose. It implements, rather than displacing, Article III(2).

262. This interpretation gives effet utile to both Article IV(3) and Article III(2) as concordant provisions placed within the same treaty text. There is no rigid rule of treaty interpretation requiring only one provision to apply to a given situation, to the exclusion of all other provisions in the treaty. Indeed, it is common to have general and specific provisions within the same treaty text, the specific provisions implementing the general ones. This is not, therefore, a situation where the only way to give effet utile to two provisions in a treaty requires one to be read as an exception or limitation to the other. The Tribunal is comforted in this interpretation by the fact that numerous tribunals that have considered arguments such as the Respondent's have been unable to regard specific MFN clauses as excluding more general ones,Footnote ²¹⁸ with one tribunal noting that clauses such as Article IV(3) address a specific issue debated in customary international law.Footnote ²¹⁹

(iii) Article III(4) does not apply

263. The Respondent argues further that Article III(4) (quoted at paragraph 248 above) excludes the application of Article III(2) because Italy “is party to [a] regional organisation”, the European Union. The Tribunal is unable to agree.

264. The Respondent's reading is inconsistent with the natural meaning of Article III(4). This provision is engaged only if either of the States Parties, Syria or Turkey, is a member of a customs union, regional economic organization, or similar arrangement. Then, the State Parties’ obligations under the relevant agreements will be lex specialis and remain unaffected by their MFN obligations under the Treaty. The obvious rationale for this is that a customs union or economic organization will typically provide for freedoms and benefits going well beyond a bilateral relationship of mutual investment protection; and that such privileges should not automatically be extended outside the circle of States participating in the union or organization. Thus, the MFN-treatment obligation in Article III(2) may not be relied upon by a Turkish investor to claim the special benefits of a national of a State with which Syria may form a customs union or regional economic bloc. In that hypothesis, Article III(2) “shall have no effect”, as Article III(4) states.

265. The Claimants rely on Article III(2) to avail themselves of a protection to which Italian investors would be entitled under Article 4 of the Syria-Italy BIT. Such an entitlement arises exclusively under that BIT, not under a customs union or regional economic organization agreement. Article III(4) does not apply.

(iv) The expiry of the Syria-Italy BIT is immaterial

266. The Respondent also argues that the expiry of the Syria-Italy BIT in November 2018 prevents the Claimants from relying on Article 4 of that BIT. The Tribunal is unable to see merit in this argument.

267. As already noted, the natural meaning of the terms “treatment accorded” in Article III(2) encompasses more-favourable treatment that the host State is legally required to accord to third-State nationals. It follows, consistent with general international law, that the duty of the host State under Article III(2) arises when it undertakes to extend the relevant treatment to nationals of a third StateFootnote ²²⁰ and ceases when that obligation is terminated or suspended.Footnote ²²¹ As observed by another tribunal, the “[b]enefits available due to an MFN clause last as long as the treaty that grants them is in effect”.Footnote ²²²

268. The Treaty entered into force on 3 January 2006,Footnote ²²³ a little more than two years after the entry into force of the Syria-Italy BIT.Footnote ²²⁴ Thus, from the entry into force of the Treaty, Article III(2) permitted a Turkish investor in Syria to rely on treatment due to Italian investors under the Syria-Italy BIT, including Article 4.Footnote ²²⁵ The Syria-Italy BIT ceased to be in force on 12 November 2018, pursuant to its Article 14(1).Footnote ²²⁶ Nevertheless, under Article 14(2), its provisions will “remain effective for a further period of five years” (ie, until 12 November 2023) in respect of investments made while the BIT was in force.

269. It follows that Article 4 of the Syria-Italy BIT was in force at all possibly critical times for the present case, in 2011 (the Claimants’ asserted date of breach by the Respondent) and in 2016 (the Claimants’ Request for Arbitration); and in any event will “remain effective” until November 2023. The Claimants are plainly entitled to rely on Article 4, and the Respondent's contrary argument is to be rejected.

(v) The lex posterior argument is unavailing

270. The Respondent argues that the Treaty followed later in time than the Syria-Italy BIT, and Article IV(3) of the Treaty was intended to set out a separate, self- contained regime on war losses, such that Article 4 of the Syria-Italy BIT cannot be applied. This argument is founded on the lex posterior rule in Article 30(4)(b) of the VCLT. This article applies in case of “successive treaties relating to the same subject-matter” and provides that:

271. The Respondent's argument is predicated on the assumption that Article IV(3) of the Treaty sets out a self-contained regime which applies to the exclusion of any other investment protection. The Tribunal has already rejected this argument.

272. In any event, the Tribunal considers that Article 30(4)(b) is not engaged at all. Article 30 would apply only if Syria, Turkey, and Italy were party to an earlier (multilateral) treaty while only two of them party to a later (bilateral) treaty.Footnote ²²⁷ That is evidently not the case here. There are two sets of bilateral treaty relations, as between Syria and Italy and as between Syria and Turkey. By each of these bilateral treaties the contracting States may undertake to provide MFN treatment to the other State or its nationals.

273. The scope of an MFN clause is a matter for the contracting States to define in their basic treaty, this being “the juridical link” that allows the contracting States to avail themselves of rights that one of them has accorded or may come to accord to a third State or its nationals.Footnote ²²⁸ Here, it was for the States Parties, if they so wished, to restrict the MFN scope of Article III(2). The States Parties did indeed exclude certain benefits by virtue of Article III(4), as already discussed. But they did not restrict Article III(2) to treatment accorded by subsequent treaties only. No such restriction will be presumed in international law,Footnote ²²⁹ and the Tribunal sees every good reason to read the words “treatment accorded” as encompassing both pre-existing treaties (such as the Syria-Italy BIT) and subsequent treaties.

274. The only qualification in Article III(2) is that the more-favourable treatment must be “accorded in similar situations”. As already discussed and is further discussed below, Article 4 of the Syria-Italy BIT does indeed concern treatment in similar situations as those which the Claimants faced.

275. Accordingly, the Respondent's argument is to be rejected.

(vi) Whether the Respondent failed to comply with Article III(2)

Article 4 is not limited to harm inflicted by the host State

283. The Tribunal is aware that a number of investment treaties provide for compensation for harm caused by the host State's “forces or authorities” (sometimes carving out action justified by military necessity or the exigencies of conflict). The Respondent has such treaties.Footnote ²³²

284. This feature is absent from Article 4 of the Syria-Italy BIT.Footnote ²³³ Quite the opposite, Article 4 covers harm independently of the identity of those who caused it. The first sentence of the Article refers to “losses or damages . . . due to war, other forms of armed conflict, a state of emergency, civil strife or other similar events”, without stipulating that such “losses or damages” must result from conduct attributable to the host State. Indeed, the clause is quite deliberately worded to be triggered solely by an objective occurrence, “losses or damages . . . due to” circumstances of war, etc. The second sentence puts this point beyond doubt, spelling out that the duty to compensate arises “[i]rrespective of whether such losses or damages have been caused by governmental forces or other subjects”.

285. The Tribunal acknowledges that one might more naturally expect to see the “irrespective” clause placed in the first sentence, as indeed is the case in the Arabic version of the Treaty.Footnote ²³⁴ But the placement of the clause does not alter its meaning, which is plain on its face. The second sentence deals with “compensation payments” by virtue of the duty to “offer adequate compensation”. The opening phrase of the second sentence makes clear that such payments arise “irrespective” of the person or entity who caused the harm. In that regard, the word “subjects” (“soggetti” in the Italian version; “أو ﻏﯿﺮھﺎ ”, ie “other forces”, in the Arabic version) refers to the actor responsible for the “losses or damages” and is simply a formal term to denote persons or entities. The sheer breadth of the terms “or other subjects”, set in the clause by contradistinction to “governmental forces”, means that there is no need to engage in any analysis of attribution: harmful acts by any person or entity will suffice.Footnote ²³⁵

286. It necessarily follows that it is immaterial whether the actor acted lawfully (for example in accomplishing a military mission) or unlawfully (for example in opposing the governmental forces, or for private gain). It is required, by contrast, that the relevant conduct be part of war or similar events, as discussed immediately below. Accordingly, actions or omissions by the PYD/YPG, which as noted at paragraph 120 are not regarded by the Respondent as attributable to it, may be captured by Article 4, provided they are causative of “losses or damages” that are “due to” circumstances encompassed within the provision.

The relevant harm must be “due to” war and similar events

287. While Article 4 does not exclude conduct justified by military necessity, it does set forth a causal nexus that the investor's “losses or damages” must be shown to satisfy: such losses or damages must be “due to” war and similar circumstances.

288. The natural meaning of due to is caused by, owing to, or by reason of. It is consistent with the unusual breadth of Article 4 to read the words “losses or damages . . . due to war . . . or other similar events” as requiring a pronounced degree of causal proximity, certainty, and directness. An investor must of course show “an uninterrupted and proximate”Footnote ²³⁶ chain of causation between the “losses or damages” and the “war . . . or other similar events”. But one must also be careful to exclude possible contributing or intervening events which interrupt the directness of causation (such as political hostility), as one must also exclude second-degree effects of war (such as a drop in demand, profiteering, inflation, or fluctuations in currency exchange rates). Article 4 may not be read as unlimited insurance against generalized adversity flowing from war and similar situations. Rather, and as the second sentence suggests by the words “caused by governmental forces or other subjects”, the intent is to capture harmful events that occur in a theatre of war or conflict.

“Adequate compensation” for “losses or damages”

289. The host State's duty under Article 4 is to “offer adequate compensation”. This is a second-order duty, in that the provision does not require the host State to have caused, let alone wrongfully, the investor's “losses or damages”. This is not, therefore, responsibility to make reparation for an internationally wrongful act. It is a purely economic responsibility to indemnify for harm incurred in certain extraordinary circumstances. Nevertheless, the notion of “adequate compensation” for “losses or damages” (“danni o perditi” in the Italian version; “اﻟﺨﺴﺎﺋﺮ أو اﻷﺿﺮار ” in the Arabic version) corresponds to compensation for “any financially assessable damage including loss of profits” under the law of State responsibility.Footnote ²³⁷

290. In short, Article 4 requires the host State to offer compensation for harm, including loss of profit so far as it can be established. Such redress must be adequate to the harm suffered, that is, wipe out its consequences as far as monetary relief may do so. It follows that the compensation must also make allowance for the time-value of money for the period between the occurrence of the investor's compensable harm and the actual payment by the host State.

(vii) The nature of the Claimants’ deprivation of their investments

295. As noted above, the Claimants are shareholders in businesses with underlying assets, both physical (such as sites, plant, and machinery) and economic (such as contracts, know-how, goodwill, and clientele). Although the Claimants argue that they “lost their shares” in Raqqa and Hasakah due to the conflict in Syria,Footnote ²⁴³ it is undisputed that the two Syrian companies, Raqqa and Hasakah, remain legally constituted and in existence; and the Claimants’ legal status as shareholders in these companies is intact and undisputed within Syria's legal order. The Tribunal also notes that there has been no evidence to suggest that rights recognized within Syria's legal order are not recognized in the DFNS-controlled areas.

296. However, the Claimants’ uncontested legal status as shareholders is not dispositive of an inquiry regarding the deprivation of their rights. The Claimants’ shareholdings in Raqqa and Hasakah are nominal and hollow if these companies are effectively deprived of use and control of their assets. After all, these assets serve the businesses that these companies were established to conduct. Without these assets, there is no business for the companies to conduct or manage. In that situation, the shareholders of the companies are also practically deprived of the essential attributes of their shareholder rights, including their economic value.

297. In applying this test on the facts of the case, two periods must be distinguished. In the first period, starting in March-April 2011 and ending in March 2012, the Claimants’ decision to repatriate to Turkey senior management and to suspend commercial operations at the two Plants and the construction of the Raqqa Factory was made for prudential reasons. The Claimants indeed accept that, while there were sporadic incidents of insecurity and intimidation in their facilities, it would have been possible to continue operating.Footnote ²⁴⁴ The Tribunal, while intending no criticism of the Claimants’ decision, is bound to consider that the causal nexus required under Article 4 is not satisfied by prudential action to avoid potential harm. Rather, in the circumstances of this case, this nexus requires that the investor's action was the only viable course in the circumstances of the conflict— an inexorable necessity.

298. The second period starts in April 2012, when on both sides’ accounts intense conflict spread to the Ain Issa and Al-Yarubiyah areas and, a little later, the bulk of the Respondent's armed forces retreated from these areas. The Tribunal considers that from April 2012, continuing with commercial operations or construction activities was no longer viable, as a direct result of the evolution of the conflict. A reasonable operator has no real choice when harm is certain or near certain.

299. The evidence is as follows:

1. (i) Mr Yamantürk's testimony was that “conflicts had not escalated in the Ain-Issa region too much after the initial events that began in March 2011”.Footnote ²⁴⁵

2. (ii) Similarly, Mr Çalik testified that the Claimants suspended commercial operations “before the events spread to [their] region starting from 2011”, and that “[t]he events started affecting Raqqa and Yarubiya in March 2012”.Footnote ²⁴⁶

3. (iii) This account is confirmed by Mr Tüylü, whose testimony on these issues was not challenged. He testified that the “slight unrest” in the Ain Issa region in 2011 was “not serious in scale and there was not much trouble in the region during that time”.Footnote ²⁴⁷ Thus, “[i]n April [2011], when [the Claimants] pulled a large percentage of [their] laborers from the Yarubiyah plant, and in July [2011], when [the Claimants] pulled a large percentage of [their] laborers from the Ain-Issa plant [the Raqqa Factory], the conflicts had not yet jumped into the regions where the plants are located”.Footnote ²⁴⁸ As he said, “the main conflicts began in March 2012”,Footnote ²⁴⁹ as indeed he confirmed at the hearing: “incidents spread out to [the Plants’] region at a later stage”.Footnote ²⁵⁰

4. (iv) Mr Erkmen, the Claimants’ expert on political matters and security, confirmed that the Ain Issa and Al-Yarubiyah regions did not become unsafe for commercial operations until the second half of 2011 at the earliest:THE PRESIDENT: . . . I want to ask you now something about timing. If you have the two areas in mind that this case concerns, one is close to Ain Issa and the other one is close to Has[a]k[ah], can you tell us whether in 2011 the situation there was, in your view, unsafe for commercial operations?MR ERKMEN: You mean in 2011? THE PRESIDENT: I mean in 2011.MR ERKMEN: No. When the incidents started we can't say that that region was unsafe, when the incidents started.THE PRESIDENT: When would one start to say that these areas were unsafe? Is it in the middle of 2012? Is it earlier? Is it later?MR ERKMEN: As of the second half of 2011, ie as clashes emerged sporadically – I'm sorry, in a distributed way in different places, we can say that, as of that period of time, it wouldn't be easy to conduct commercial activity in those regions. My answer a minute ago was about the period of time when the clashes initially started.Footnote ²⁵¹

5. (v) On the Respondent's account, by “mid 2012”,Footnote ²⁵² the government's armed forces started withdrawing from the north-eastern territories of the country, including Ain Issa and Al-Yarubiyah, after losing “many battles” against the FSA and “Kurd militias”, to prioritize the protection of civilians in other parts of the country.Footnote ²⁵³ (UN reports confirm the Respondent's account of a retreat for strategic reasons.) After this retreat, the Respondent was unable to ensure the safety and security of persons and property in Ain Issa or Al-Yarubiyah.

6. (vi) The Tribunal also notes that Turkey suspended activities at its Embassy in Damascus in March 2012, which again suggests that the conflict in Syria attained a critical stage around that time.Footnote ²⁵⁴

300. One now turns to the evidence regarding the deprivation of the Claimants’ use, control, and enjoyment of their investments in the period after April 2012. After the departure of the Claimants’ senior management and the suspension of activity at Raqqa and Hasakah, the Claimants gradually lost any form of access to the companies’ sites. This occurred around July 2014 for the Raqqa site, and around March 2014 for the Hasakah site.

301. Starting with Raqqa, it is common ground that PYD/YPG has been in control of Ain Issa since the withdrawal of the Syrian government forces in 2012 (save for an interlude, when ISIS controlled Ain Issa between July 2014 and May 2015).Footnote ²⁵⁵ The evidence adduced by the Claimants—which the Respondent says it is unable either to confirm or challenge—shows that the Raqqa site was ravaged by various events after July 2012. These include: (i) thefts of electronic devices by third parties in July 2012;Footnote ²⁵⁶ (ii) demands by PYD/YPG for payments or equipment in the period September-December 2012;Footnote ²⁵⁷ (iii) theft of personnel's belongings and an automobile by armed third parties in March 2013;Footnote ²⁵⁸ (iv) theft of an earth digger, arson of a dormitory room, and a raid by various third parties in July 2013;Footnote ²⁵⁹ (v) demands by PYD/YPG to operate the Raqqa Plant in early 2014;Footnote ²⁶⁰ (vi) a seizure of equipment (two mixers and a concrete pump) by PYD/YPG in March 2014;Footnote ²⁶¹ and (vii) damage to dormitory rooms as a result of an armed clash between PYD/YPG and ISIS in July 2014.Footnote ²⁶²

302. The Claimants say that these events culminated in their withdrawing all remaining personnel from the Raqqa Plant in July 2014, thus losing any form of access to the site.Footnote ²⁶³

303. The Tribunal considers that the events in the period April 2012 – July 2014 show a pervasive absence of security and safety, compelling the Claimants’ withdrawal of all remaining personnel due to the conflict in Syria.

304. The information available in respect of the period after July 2014 is limited, but it is consistent with the events up to that time. Mr Anil testified that, based on information provided by local personnel who obtained photographs and information “remotely”,Footnote ²⁶⁴ the PYD or YPG started operating the Raqqa Plant jointly with third parties in April 2016.Footnote ²⁶⁵ Mr Yamantürk testified that the Claimants learnt from people they “know from the region” that the Raqqa Plant “is being operated right now, by third parties”.Footnote ²⁶⁶ The Claimants also confirmed that they understand “from certain photos and occasional information received [from] the region that there have been attempts to operate the facilities”.Footnote ²⁶⁷ Following the hearing, the Respondent submitted a witness statement by Jassem Ali Almousa, indicating that the Raqqa Plant was intact and being operated. Although this statement has limited probative value, containing as it does second- hand informationFootnote ²⁶⁸ proffered by a person whom the Tribunal did not have an opportunity to examine, it is consistent with the Claimants’ evidence.

305. Turning to Hasakah, the evidence is as follows:

1. (i) The Syrian government armed forces withdrew from the Al-Yarubiyah area by March 2013 at the latest.Footnote ²⁶⁹

2. (ii) The FSA controlled Al-Yarubiyah between March and October 2013.Footnote ²⁷⁰

3. (iii) PYD/YPG has largely been in control of the area since November 2013 (save for an interlude of ISIS control between July 2014 and May 2015).Footnote ²⁷¹

306. The Claimants say that they had no access to the Hasakah site during the period of FSA's control, between March and October 2013.Footnote ²⁷² They were able to regain access to the Hasakah Plant in October 2013, and found that it “was seriously damaged” and that “all of [their] portable materials, such as generators, computers, and the detachable equipment on the electrical panel, had been looted, and that the buildings and silos were damaged”.Footnote ²⁷³ Ultimately, in March 2014, PYD/YPG started efforts to put the Plant to production,Footnote ²⁷⁴ following which the Claimants say they lost all access to it.Footnote ²⁷⁵

307. The Tribunal has no reason to question the evidence of the Claimants, which is consistent with the overall situation on the ground as the Tribunal understands it. The Tribunal concludes that the Claimants’ loss of any access to the Hasakah site in March 2014 was also due to the conflict in Syria.

(viii) The Claimants’ deprivation is not transient or ephemeral

308. Summarizing the foregoing findings, from April 2012, the Claimants were forced by the circumstances of the conflict in Syria to abandon use, control, and enjoyment of their investments.Footnote ²⁷⁶ Gradually, they lost any form of access to the underlying assets, which are being operated, perhaps intermittently and only to a degree, by PYD/YPG or for their benefit.

309. While it is therefore the case that the Claimants’ harm is ongoing, this is not a case of ephemeral or transient deprivation. It is a case of a lasting deprivation whose duration cannot be predicted with any certainty. This calls for judgement as to the compensation that is adequate to the nature and severity of the Claimants’ harm. The Tribunal's assessment takes account of the factors set out below.

310. On the one hand, the possibility that the Claimants’ deprivation will be reversed cannot be ruled out as a matter of principle.

1. (i) It is common ground that Raqqa and Hasakah, being validly constituted and existing Syrian companies, remain legally entitled to exercise full ownership over their assets and to recommence their business. It is also common ground that Syrian law does not recognize that any third party, such as PYD/YPG, has a valid right to possess or use the companies’ assets. The Claimants acknowledge that “[t]here is no legislative or administrative act preventing [them] from accessing . . . their investments”.Footnote ²⁷⁷ Nor do the Claimants suggest that PYD/YPG has prevented them, or would prevent them in future, from returning to the Plants and recommencing operations.Footnote ²⁷⁸

2. (ii) All available evidence indicates that the Raqqa and Hasakah Plants are still operational and indeed have been operated by or for PYD/YPG, although it is not known to what degree and in what state of repair (or ill-repair). In this connection, the Tribunal records that, with the consent of the parties, it established contact with the individual charged with DFNS's foreign affairs and secured his promise to convey within the DFNS the Tribunal's inquiries regarding the Plants. The Tribunal, after consultation with the parties, addressed five specific questions to the DFNS concerning the legal and material status of the Plants.Footnote ²⁷⁹ No response was forthcoming, despite follow-up by the Tribunal. The Tribunal is therefore constrained to make its findings based on the evidence in the record.

3. (iii) The Syrian Arab Republic continues to assert full sovereignty over the territory comprised within its internationally recognized borders. This includes the areas at present under the control of DFNS, where the PYD/YPG organizations operate and where the Claimants’ facilities are located. The DFNS operates under political cover of a “Charter” which proclaims Syria's “territorial integrity”.Footnote ²⁸⁰ It follows that the arrangements set out in the Charter, seeking to establish a degree of autonomy for the regions of Afrin, Jazira, and Kobane, ultimately aspire to be endorsed by a new Constitution of the Syrian Arab Republic. In short, the present situation in the DFNS-controlled areas, which came about in a context of widespread conflict in Syria, is regarded as temporary both by the Syrian Arab Republic (which rejects it as an illegal state of affairs) and the DFNS itself. For its part, Turkey has also confirmed that it is “unequivocally committed to the territorial integrity and political unity of Syria”.Footnote ²⁸¹

311. On the other hand, there can be no certainty as to the end of the conflict and the normalization of the situation in the areas where the companies’ facilities are located. Also, the Plants have limited operating lives: on the Respondent's case, 2027 (for the Hasakah Plant) and 2031 (for the Raqqa Plant).Footnote ²⁸² Even if one assumes that the Plants remain fully operational and in a good state of repair—which, on the evidence, is a highly optimistic assumption—most of the useful life of their plant and equipment has already been expended.

312. In the circumstances, a duty of ongoing, periodic compensation for the Claimants’ ongoing harm would be ill-suited to the reality of the situation. Rather, for the purposes of compensation the Claimants’ deprivation should be treated as being permanent as of 2012, and compensation should be fashioned in a manner that takes account of the fact that the underlying assets may still be operational when the conflict ceases and the situation is normalized. This issue is addressed further in Section V.D below.

(ix) The Respondent has not offered the Claimants compensation

313. It is common ground that the Respondent has not offered to provide compensation to the Claimants for the effective deprivation of their investments, in accordance with Article 4 of the Syria-Italy BIT in conjunction with Article III(2) of the Treaty. Indeed, in this arbitration the Respondent has rejected the notion that it has any such duty. The Respondent has therefore failed to comply with this Treaty obligation.

314. The Respondent's breach attracts a duty to compensate the Claimants for the injury caused to them. This injury is equal to the amount that the Claimants stood to be offered under Article 4 plus the time-value of this amount until full payment. This issue is also addressed further in Section V.D below.

(x) The Respondent's defences of force majeure and necessity

315. The Respondent has asserted force majeure and necessity arising from Syria's conflict as circumstances precluding the wrongfulness of any Treaty breaches on its part.Footnote ²⁸³ However, it has not specifically explained how such defences would exclude responsibility under a war-losses indemnity clause such as Article 4 of the Syria–Italy BIT.

316. For their part, the Claimants assert that such defences are “inapplicable” here.Footnote ²⁸⁴ They argue that “if a provision applies—exclusively—to cases of war and civil strife, arguing that it cannot be applied as war and/or civil strife constitutes a circumstance precluding wrongfulness would inevitably reduce the clause into redundancy”.Footnote ²⁸⁵

317. Both sides agree that force majeure and necessity are circumstances precluding wrongfulness, including a breach of treaty obligations, in the terms codified in the 2001 ILC Articles.Footnote ²⁸⁶

318. The Tribunal considers that the Respondent has not made out a defence based on either of these grounds.

319. The obligation concerned here is to “offer adequate compensation” to investors. That is an obligation of monetary redress for harm already occurred. The obligation arises in case of “losses or damages on [investors’] investments in the territory of the other Contracting Party due to war, other forms of armed conflict, a state of emergency, civil strife or other similar events . . . [i]rrespective of whether such losses or damages have been caused by governmental forces or other subjects”. As already noted, the obligation does not presuppose, let alone require, that the host State had a prior duty to avert or not to cause the “losses or damages”.

320. It is therefore a purely economic obligation in the nature of an indemnity which must be shown to be “materially impossible in the circumstances to perform”Footnote ²⁸⁷ or to be precluded by conduct that is “the only way for the State to safeguard an essential interest against a grave and imminent peril”.Footnote ²⁸⁸ A demonstration of “material impossibility” or action necessary to “safeguard an essential interest against a grave and imminent peril” is fact-specific, requiring cogent evidence. Here, the Respondent has not explained, let alone demonstrated, how payment of money to the Claimants would satisfy either of these legal tests. The Tribunal observes in that regard that war or armed conflict, in themselves and without more, do not excuse non-compliance with monetary obligations.Footnote ²⁸⁹

321. The Respondent's defences are accordingly to be rejected for want of substantiation.

322. For completeness, the Tribunal notes that a defence of force majeure is in any event unavailable where a State “has assumed the risk of that situation [of force majeure] occurring”.Footnote ²⁹⁰ By virtue of Article 4 of the Syria–Italy BIT, the Contracting Parties assumed the risk that “war, other forms of armed conflict, a state of emergency, civil strife or other similar events” might occur and cause “losses or damages” to investors. To insure against the occurrence of such harm, the Contracting Parties undertook to “offer adequate compensation”. It is not open to the Respondent to invoke as force majeure the very risk against which it has undertaken to offer an indemnity.

(i) The Claimants’ DCF valuations

336. The Respondent argues that the use of the DCF method is not “appropriate in this case”, primarily in the light of the short period during which the Raqqa and Hasakah Plants were operational (two years and one year, respectively).Footnote ³⁰⁵

337. The Claimants retort that “the DCF method does not necessarily require past performance data to be plugged in the model” and that “the DCF method [may be] based solely on projections (without past data), as long as the projections are reasonable, reliable and objective”.Footnote ³⁰⁶ Consistent with this position, the Claimants presented two different DCF-based valuations. First, a valuation by Mr Yamantürk (a witness of fact), submitted with the Claimants’ SoC, presented “but-for” net present values for the Raqqa Plant (USD 24.16 million) and the Hasakah Plant (USD 59.51 million) at the “beginning of 2011”.Footnote ³⁰⁷ With their Reply, the Claimants submitted an expert report by Dr Birgönül, which presented different “but-for” net present values for the Raqqa Plant (USD 20.4 million) and the Hasakah Plant (USD 63.35 million) “in 2009”.Footnote ³⁰⁸ In their subsequent requests for relief, the Claimants relied only on the DCF valuations presented by Dr Birgönül. The Tribunal accordingly focuses on those latter valuations.

338. The Tribunal agrees, as indeed does the Respondent's expert,Footnote ³⁰⁹ that the DCF method, being an income-based approach, is in principle appropriate to value shares in a commercial enterprise. Nevertheless, the method relies on forward-looking parameters that are inherently uncertain. The appropriateness of DCF therefore depends on a number of factors, notably a track-record of financial performance, reliable projections of revenues, and a future outlook that can be reliably reflected in risk premia that inform the overall discount factor.Footnote ³¹⁰ And when a DCF method is adopted, it is typical to cross-check its results against other benchmarks, such as comparable arm's length transactions, stock-market valuations, or historical investment costs.Footnote ³¹¹

339. In the Tribunal's view, the DCF valuations presented by the Claimants are not appropriate in the circumstances of this case. The Tribunal recognizes that the circumstances are highly unusual and uncertain, but its task is nevertheless to adopt a valuation methodology that is apt to such circumstances. The difficulties with the Claimants’ DCF valuations may be outlined as follows.

340. First, the Claimants’ valuation date is 2009. The intent is to capture a “but for” value, ie had it not been for the overall economic vagaries of conflict. That premise is inconsistent with the causal nexus required by Article 4 of the Syria-Italy BIT (as set out at paragraph 288 above),Footnote ³¹² and also inconsistent with the Tribunal's decision as to the date on which the Claimants’ entitlement to compensation arose, ie 1 April 2012. As Dr Birgönül testified, his revenue projections do not take into account the prevailing situation in Syria or what he called “black swan effects, such as the Arab Spring”.Footnote ³¹³ Further, his discount rate of 8% purports to reflect “the cost of capital that any investor could earn . . . with an investment of comparable size and risk” in Syria in 2009,Footnote ³¹⁴ but as he conceded, it does not account for “the political risk [which would have been] very high” in 2012, leading to a “very high” discount rate.Footnote ³¹⁵

341. Secondly, as Dr Birgönül also frankly admitted, “a track record of a couple of years for the two grinding plants” was “too narrow” a base to be able to use DCF as a reliable forward-looking method.Footnote ³¹⁶

342. Thirdly, there are difficulties with discrete inputs. Without intending to provide an exhaustive list, and using Raqqa as the main illustration, the principal difficulties are as follows:

1. (i) The Claimants’ inputs are in US Dollars, while Raqqa's capital, assets, and liabilities are denominated in Syrian Pounds; as indeed were the companies’ revenues from cement products, which were sold exclusively on the Syrian market.Footnote ³¹⁷ There was no explanation for the conversion of the SYP underlying figures into 2010 USD figures.Footnote ³¹⁸ Also, Dr Birgönül testified that his 8% discount rate was predicated on the US Dollar being the currency of valuation,Footnote ³¹⁹ without an explanation for his approach. The Tribunal notes in this regard that the choice of currency and conversion date have a significant impact on assumptions related to inflation and country/business risk.

2. (ii) Dr Birgönül's projected annual sales (229,452 tons)Footnote ³²⁰ exceed the “annual cement production capacity” of the Raqqa Plant on the Claimants’ own evidence (220,000 tons).Footnote ³²¹ (Similarly, the projected annual sales for Hasakah are 734,247 tons,Footnote ³²² while the Hasakah Plant was rated at 720,000 tons.)Footnote ³²³ The deltas are small per se, but the Tribunal has heard no explanation of how actual production may be sustained at levels above a plant's rated capacity year-on-year for 25 years.

3. (iii) Dr Birgönül's projected sales price of USD 80 per ton of cement is difficult to square with the contemporaneous evidence. The documents in the record show that the Raqqa Plant was selling both bagged cement (with two types of blended-cement products) and bulk cement, with different sales prices for each product.Footnote ³²⁴ No explanation has been offered for arriving at an average sales price across three different products, over 25 years. A similar issue arises in respect of costs projections, which also fail to account for the different costs involved in the production of various cement products.Footnote ³²⁵

4. (iv) Dr Birgönül's analysis does not account for inflation, either on costs or sales prices.Footnote ³²⁶ The Respondent's expert, Mr Youssef, testified that inflation would increase costs more than sales prices, thereby decreasing profits.Footnote ³²⁷

343. Fourthly, in respect of Hasakah, there is a question as to the company's inherent profitability, which the Claimants’ DCF fails to account for. It is undisputed that Hasakah made losses in its 13 months of operation in 2010-2011.Footnote ³²⁸ The balance sheet for the year to 31 December 2010 indicates a net loss of SYP 176,661,043.Footnote ³²⁹ The Tribunal understands that Hasakah's production and marketing costs were higher than expected; and that these costs resulted from decisions by the Free Zone administration which limited working shifts and imposed export taxes and other requirements for sales both in Syria and Iraq.Footnote ³³⁰ A Board resolution of September 2010 records total production costs of USD 80.40/ton and a sales price of USD 80/ton.Footnote ³³¹ Board minutes from June 2010 record that “[t]he Free Zone [was] not suitable for cement manufacturing and sales under these conditions” and, unless the conditions significantly changed (such as re-registering Hasakah as a “firm involved in manufacturing and selling in Syria outside the Free Zone legislation”), “it [was] hard to achieve the expected volume in terms of sales”.Footnote ³³²

344. Mr Çalık testified that the Claimants “made an application to the [Free Zone] administration to resolve the shift problems”; and that this “application was accepted”, but only after operations had been suspended, hence Hasakah “never got the opportunity to work three shifts in this plant as planned”.Footnote ³³³ The Tribunal observes that there is no documentary evidence of this application or its acceptance. It also observes that in respect of the tax and other impositions by the Free Zone administration, the Claimants put their case no higher than an expectation that these issues would eventually go away.Footnote ³³⁴

345. Finally, the Claimants have been unable to present any cross-check or validation of the DCF results. This observation is not a criticism: there simply does not appear to be any substantially similar assets or transactions in Syria to serve as benchmarks. As Dr Birgönül testified, “lack of any similar cement grinding factories” in Syria makes the use of such comparators “impossible”.Footnote ³³⁵

(ii) The Claimants’ claim for sunk costs

346. The Tribunal recognizes, as indeed do the Claimants,Footnote ³³⁶ that historical investment costs are an imperfect measure to value a revenue-generating asset. Nevertheless, recovery of capital invested is the minimum a rational investor expects to receive from a commercial venture that is expected to be successful. Thus, tribunals have relied on historical investment costs in appropriate cases, especially where the investment may be expected to generate profits but their assessment is too uncertain. The Tribunal considers the present case to fall in that broad category, for reasons given in connection with the Claimants’ proposed DCF approach, above.

347. The Claimants rely primarily on the two companies’ financial statements, with further explanations provided in Mr Yamantürk's Witness Statement and two reports by Şeref Acar that are annexed to that Statement.Footnote ³³⁷ The Claimants’ claim is arrived at by tallying up the value of tangible and intangible fixed assets in the two companies’ balance sheets (without depreciation) and converting them from SYP into USD.Footnote ³³⁸ For the Raqqa Factory in particular, the relevant figure is derived from the entry for the “[p]roject under process (2^nd phase)” in Raqqa's 2012 financial statements.Footnote ³³⁹ In addition, there is a claim for some USD 2.17 million, said to have been incurred by Güris on Raqqa's behalf for letters of credit and advances to contractors in connection with the Raqqa Factory. This amount was not invoiced to Raqqa and hence not recorded in Raqqa's financial statements.Footnote ³⁴⁰

348. The financial statements of the two companies, Raqqa and Hasakah, are public documents, which the Respondent has had an opportunity to retrieve and comment upon. The Tribunal therefore turns to consider the probative value of the financial statements in the record, before turning to other issues.