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Decision discussed Final Award
Partially Dissenting Opinion of Ms Carolyn
B. Lamm
Partially Dissenting Opinion of Professor Philippe
Sands QC
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Date of decision 8 March 2016
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Members of the tribunal Veijo HEISKANEN (President)
Carolyn B. LAMM (Claimant's Appointee)
Philippe SANDS (Respondent's Appointee)
Introduction
In İçkale İnşaat Limited Şirketi v. Turkmenistan,Footnote 1 the investment arbitral tribunal's majority issued an award in March 2016, under the Turkmenistan–Turkey Bilateral Investment Treaty (the BIT), dismissing all of the claimant's claims in their entirety.
This case not only touches upon several classic jurisdictional and substantial issues of international investment practice, but also sheds light on the importance of factual evidence in investment arbitration. More significantly, it is interesting because both Parties’ appointed arbitrators issued partially dissenting opinions on several aspects of the case.Footnote 2
Factual Background
İçkale is a Turkish company that invested in 13 construction projects in Turkmenistan, including, inter alia, schools, hotels, and cinemas.Footnote 3 İçkale contended that the Turkmen Government interfered with the execution of the construction work by seizing equipment from the projects and by abolishing a State fund supposed to finance these works.Footnote 4 Turkmenistan, on the other hand, argued that the measures were taken because İçkale failed to perform the contract and missed several deadlines.Footnote 5
Jurisdiction and Admissibility
Turkmenistan issued several objections to the tribunal's jurisdiction and to the admissibility of İçkale's claims. One of these objections related to the dispute settlement clause specified in Article VII of BIT. This clause, which had already been debated at length in the two previous arbitrations between Turkish investors and Turkmenistan,Footnote 6 provides for several preconditions in order to go to arbitration, including recourse to domestic courts. The main issue about Article VII of the BIT was to know whether this clause had to be construed as an exhaustion of local remedies requirements or not. In the affirmative, an additional question arose as towhether the consequence of this exhaustion of local remedies would be a lack of jurisdiction or an inadmissibility of the claim. Looking at the exact wording of the clause in the different languages of the BIT, a majority considered that the clause was not a reflection nor an incorporation of the exhaustion of local remedies rule to be found in customary international law on international dispute settlement, but rather a lex specialis requirement. As a result, the futility exception which usually applies to the exhaustion of local remedies rule was considered by the majority not to be relevant in the specific case.Footnote 7
Yet, the tribunal's majority did take into consideration the fact that a part of the dispute had already been litigated before Turkmen courts and concluded that it would not be appropriate to ask the investor to go back to domestic courts. Consequently, the Tribunal found that the Claimant's claims had to be considered admissible.Footnote 8
Main Findings on the Merits
On the merits, İçkale claimed that Turkmenistan expropriated its investment because several contracts were terminated by the Turkmen jurisdictional bodies after the government instructed them to do so. In addition, İçkale argued that Turkmenistan unlawfully expropriated its machinery, equipment, and ownership rights over the facilities, without following the applicable procedure provided by domestic law.
The BIT being limited in its scope, İçkale attempted to use the Most-Favorable-Treatment (MFN) clause contained in the BIT in order to import standards from other investment agreements concluded by Turkmenistan. Further, in separate causes of action, İçkale claimed that the host-State breached the Turkmen Foreign investment Law of 2008 and the general principles of international law when it intentionally and unlawfully intervened in its activities.
The Expropriation Claims
As regards the expropriation of its contractual rights, İçkale affirmed that the government dictated termination of the contracts to both the courts and the internal arbitral tribunal dealing with the case. The tribunal's majority however dismissed this demand for lack of evidence.
As regards the expropriation of machinery and equipment used for the projects, the tribunal's majority dismissed İçkale's claims, because the evidence submitted by the investor was not convincing enough to conclude that the State organs were behind the termination of the investor's contracts and the taking of equipment.
The Attempt to Import Standards under the MFN Clause and the Other Claims
The BIT is limited in its scope: while it includes a provision to protect against unlawful expropriation and an MFN clause, it does not include substantive standards usually found in investment agreements, such as fair and equitable treatment (FET), full protection and security (FPS), non-discrimination, or protection of specific undertakings. Yet, the investor sought to import these substantive standards from other investment treaties concluded by Turkmenistan with third States on the basis of the MFN clause.
While this type of import has been accepted in the past, the tribunal in İçkale v. Turkmenistan refused to do so. The tribunal explained that the legal effect of the MFN clause was to prohibit discriminatory treatment of investors when compared with the treatment accorded by the host State to investors of any third State.Footnote 9 The tribunal highlighted however that this MFN obligation existed ‘only insofar as … the investors of the home State and … the investors of the third State can be said to be in “a similar situation”’.Footnote 10 For the tribunal, however, investors cannot be said to be in a similar situation merely because they have invested in a particular State.Footnote 11 Pursuing its reasoning, the tribunal explained that ‘the standards of protection included in other investment treaties create legal rights for the investors concerned, which may be more favorable in the sense of being additional to the standards included in the basic treaty, but such differences between applicable legal standards cannot be said to amount to “treatment accorded in similar situations”’.Footnote 12 The tribunal therefore concluded that the MFN clause does not entitle investors to invoke such favorable treatment accorded in other legal instruments.Footnote 13 As a result, the tribunal rejected İçkale's claim.
Finally, the tribunal also rejected İçkale's claim under the Turkmen Foreign Investment Law and the general principles of international law. Relying on the language of the BIT, the tribunal found that the treaty did not create any cause of action based on an alleged breach of domestic investment protection laws nor on general principles of international law.Footnote 14
The Dissenting Opinions
As explained in the introduction of this note, the two parties’ appointed arbitrators disagreed on several issues addressed in the award. Carolyn B. Lamm, the claimant's appointee, disagreed with the majority's decision in regards to the interpretation of the dispute settlement clause of the BIT. She considered this provision as being an option for the investor to choose between local courts or international arbitration.Footnote 15 In addition, she saw merits in İçkale's claim regarding the expropriation of its equipment. Looking closely at the evidence submitted by the parties, she explained that the gap between the amount of the penalties ordered by Turkmen courts and the value of the equipment seized was excessive and that it should have amounted to an unlawful expropriation.Footnote 16
Philippe Sands, Turkmenistan's appointee, also had different views with regard to the application of the dispute settlement clause. According to him, the tribunal should have concluded that it lacked jurisdiction over the case.Footnote 17 More generally, Sands found that the lack of jurisdiction would be even more justified because the dispute related to the performance of contracts which included a specific dispute settlement mechanism that the investor chose not to use. In Sands’ view, the treaty does not cover mere contractual disputes: ‘when the parties to a contract have agreed on a national forum for the resolution of disputes relating to that contract, and that national forum is by-passed, they can hardly expect matters that appear to be essentially of a contractual nature will easily be treated as breaches of treaty’.Footnote 18
