Turkmenistan "Two Recent Decisions on Jurisdiction Prove that the BIT Matters"
In Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v Turkmenistan (ICSID Case No. ARB/10/1) the tribunal decided that it does not have jurisdiction. It held that the investor failed to litigate its claims in the Turkmen courts or prove that such effort would be futile. Furthermore, the MFN clause did not apply to the dispute settlement provisions of the BIT requiring local litigation.
In Garanti Koza LLP v Turkmenistan (ICSID Case No. ARB/11/20), a different tribunal concluded that it has jurisdiction. The broad MFN clause in the UK-Turkmenistan BIT allowed the investor to rely on the offer to arbitrate made by Turkmenistan in another BIT.
Kilic v Turkmenistan
On 30 December 2009, a Turkish company, Kilic (“Kilic”), filed a request for arbitration alleging that Turkmenistan had breached the Turkey-Turkmenistan BIT (“BIT”). Turkmenistan objected on the question of jurisdiction. It argued that under the BIT the dispute may be submitted to international arbitration only after the investor had litigated it before the national courts for a year (we reported on an earlier decision of the tribunal on this issue).
On 2 July 2013, the tribunal decided that it has no jurisdiction, and Kilic should submit the dispute to the courts of Turkmenistan before turning to arbitration. The tribunal rejected Kilic’s argument that litigation before the Turkmen courts is futile for Turkish investors, like Kilic, due to the courts’ lack of independence. It held that Kilic had failed to prove the Turkmen courts’ lack of independence and, in particular, the claimant’s inability to obtain evidence from Turkmen lawyers due to them being afraid to testify against Turkmenistan.
Both parties requested rectification of the award. The tribunal issued the decision on the rectification on 20 September 2013. It has not yet become public.
Garanti Koza v Turkmenistan
On 19 May 2011, Garanti Kaza LLP, a UK company (“Garanti Koza”), submitted a request for arbitration alleging that Turkmenistan had breached the UK-Turkmenistan BIT (“BIT”).
Turkmenistan objected to jurisdiction on two grounds: (i) it did not consent to jurisdiction under the BIT; and (ii) most of Garanti Koza’s claims are contractual in nature and therefore do not fall within the jurisdiction of the tribunal.
Turkmenistan argued that in the UK-Turkmenistan BIT the parties expressly agreed that a dispute cannot be submitted to arbitration absent a separate agreement. Further, Garanti Koza may not rely on the MFN clause to import the entire dispute resolution clause from another BIT.
On 3 July 2013, the tribunal by a majority dismissed the respondent’s objection to jurisdiction based on lack of consent. The majority of the tribunal approached the question of whether Turkmenistan had consented to arbitration in three steps.
First, it held that Turkmenistan had consented in principle to submit disputes to arbitration. Under Article 8(1) Turkmenistan expressed its willingness to consider three possible kinds of arbitration whenever a UK investor requested it to do so – ICSID arbitration, ICC arbitration or UNCITRAL arbitration.
Second, Garanti Koza was entitled to rely on Turkmenistan’s offer to arbitrate in other BITs. Turkmenistan has expressly consented in the BIT to submit investment disputes to international arbitration. It has agreed in the same BIT that UK investors should not receive treatment less favourable than that accorded to investors of other States. The BIT expressly provides that the MFN treatment “shall apply” to the dispute resolution provision of the BIT.
Finally, Turkmenistan has provided investors of third States, specifically Switzerland, with an unrestricted choice between ICSID Arbitration and UNCITRAL Arbitration.
For all these reasons, a UK investor, such as Garanti Koza, may rely on Turkmenistan’s consent to arbitration in the BIT with Switzerland.
The decisions in these two cases demonstrate that the wording of the particular BIT can make or break the claimant’s case. While UK investors can submit their claims directly to arbitration, Turkish investors have to litigate them before national courts. Kilic’s decision is particularly important, given that two Turkish investors brought claims under the same BIT and Turkmenistan objected to jurisdiction in these cases as well. The cases are Muhammet Çap & Sehil Inşaat Endustri v. Turkmenistan (ICSID Case No. ARB/12/6) and Içkale Insaat Limited Sirketi v. Turkmenistan (ICSID Case No. ARB/10/24).