Everything concerning the Kılıç Ad-Hoc Committee’s Decision on Annulment of course started with the decision rendered in the ICSID case between a Turkish construction company, Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi (“Kılıç”), and Turkmenistan. Kılıç had filed an ICSID case (ICSID Case No. ARB/10/01) against Turkmenistan on the basis of the 1992 Turkey-Turkmenistan BIT (the “BIT”). In this case, Turkmenistan argued that the ICSID tribunal lacked jurisdiction as the dispute settlement provision of the BIT (Article 7(2) of the BIT)[i] first requires the investor to resort to the local courts of the host State and, when the local courts fail to give a final decision within one year, the investor may then submit his claim to international arbitration forums, namely ICSID, UNCITRAL or ICC.
After reviewing the arguments and the facts submitted by Kılıç and Turkmenistan on the interpretation of Article 7(2) of the BIT, the Kılıç tribunal ruled that Kılıç should first resort to the local courts of Turkmenistan and, only if a final judgment is not rendered by the Turkmen courts within one year, Kılıç may then apply to international arbitration.[ii]
However, in a recent ICSID case between a Turkish investor and a construction company (Muhammet Çap & Sehil Inşaat Endüstri ve Ticaret Ltd. Sti. (“Sehil”) and Turkmenistan (ICSID Case No. ARB/12/06 of 13 February 2015), the tribunal ruled that Article 7(2) of the BIT gives an optional right to the investor. Unlike the Kılıç tribunal, the Sehil tribunal focused on the object and purpose of the BIT by taking into account the explanatory notes sent to the Turkish Parliament during the ratification of the BIT and the witness statement of a Turkish Official who was involved in preparation of the BIT in 1992. After reviewing all of the facts before it, the Sehil tribunal concluded that, pursuant to Article 7(2) of the BIT, the investors may either submit their dispute to the local courts of the host State or directly to international arbitration. In any event, an investor who chooses to go to the local courts of the host State and obtains a final decision within one year will have forfeited his right to bring the dispute before an international arbitration forum.[iii]
Of course, these two different conclusions made by two different ICSID tribunals create sharp divergence on the interpretation of Article 7(2) of the BIT and there is no doubt that it will force the other tribunals dealing with the same issue to make a detailed analysis of the object and purpose of the BIT, the intention of the drafters of the BIT and the facts submitted by the parties to make well-directed determinations of whether the investors may directly apply to international arbitration without first resorting to the local courts of the host State.
More recently, on 14 July 2015, the Kılıç Ad-Hoc Committee (the “Committee”) constituted for the annulment procedure initiated by Kılıç did not enter into the debate on the meaning of Article 7(2) of the BIT and decided that the annulment reasons set forth under Article 52 of the ICSID Convention do not apply to the case at issue.[iv] Therefore, it becomes once again obvious that the annulment proceedings do not seek to retry issues of fact or law and are limited to very specific grounds such as an arbitral tribunal’s manifest excess of power, its failure to state its reasons, or a serious departure from a fundamental rule of procedure.
The Committee stated on several occasions in its Decision that it is not entitled to make a second analysis, guess or comment on the meaning of Article 7.2 of the BIT. For instance, it declared that: “…the documents objected by Respondent had been submitted in support of arguments that seek a reinterpretation of Article VII.2 by this Committee, a task that exceeds its mandate as explained by the Committee later in this decision.”[v]
Furthermore, the Committee also held that “[i]t is not for the Committee to reach its own conclusion on whether the text of Article VII.2 for the authentic English version of the BIT is ambiguous or obscure… For the Committee, what is relevant is that the Tribunal reached its conclusion after hearing the Parties, analyzing the text and questioning the translator.”[vi]
Finally, the Committee concluded that “To revise the interpretations and conclusions of tribunals in order to achieve uniformity of case law is not an objective within the limited terms of annulment committee.”[vii]
The aforementioned conclusions made by the Committee clearly indicate that it refrained from second-guessing the meaning of the dispute resolution provisions of the Turkey-Turkmenistan BIT. More importantly, the decision of the Committee shows that re-interpretating Article 7(2) of the BIT is neither necessary to annul an award on the basis of Article 52 of the ICSID Convention nor related to the grounds for annulment.
In conclusion, it is clear that the Decision on Annulment rendered by the Kılıç Ad-Hoc Committee does not have any effect over the interpretation of Article 7(2) of the BIT. On the other hand new conclusions to be made by the tribunals dealing with the same issue in the future will undoubtedly play an important role on achieving uniformity of case law on the interpretation of the dispute resolution provision of the Turkey-Turkmenistan BIT.
[i] Article 7.2 of the BIT reads as follows:
“If these disputes cannot be settled in this way within six months following the date of the written notification mentioned in paragraph 1, the dispute can be submitted, as the investor may choose, to:
- The International Center for Settlement of Investment Disputes (ICSID) set up by the “Convention on Settlement of Investment Disputes between States and Nationals of other States”, (in case both Parties become signatories of this Convention.)
- An ad hoc court of arbitration laid down under the Arbitration Rules of Procedure of the United Nations Commission for International Trade Law (UNCITRAL), (in case both parties are members of U.N.)
(c) The Court of Arbitration of the Paris International [sic] Chamber of Commerce,
provided that, if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year.”
[ii] Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, (ICSID Case No. ARB/10/1) Decision on Article VII.2 of the Turkey – Turkmenistan Bilateral Investment Treaty, 7 May 2012 and Award, 2 July 2013
[iii] Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. and Turkmenistan (ICSID Case No. ARB/12/06) Decision on Respondent’s Objection to Jurisdiction under article VII(2) of the Turkey-Turkmenistan Bilateral Investment Treaty, 13 February 2015
[iv] Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, (ICSID Case No. ARB/10/1), Decision on Annulment, 14 July 2015
[v] Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, (ICSID Case No. ARB/10/1), Decision on Annulment, 14 July 2015, ¶96
[vi] Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, (ICSID Case No. ARB/10/1), Decision on Annulment, 14 July 2015, ¶113
[vii] Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, (ICSID Case No. ARB/10/1), Decision on Annulment, 14 July 2015, ¶118