|TABLE OF ABBREVIATIONS|
|BIT||Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Turkmenistan for the Promotion and Protection of Investments which entered into force on February 9, 1995|
|C-__||Claimant's Exhibit [number]|
|C-Mem.||Respondent' s Counter-Memorial on the Merits and Memorial on Jurisdiction, dated February 28, 2014|
|CL-__||Claimant's Legal Authority [number]|
|Cl. PHB||Claimant's Post-Hearing Brief, dated October 14, 2015|
|Contract||Contract between Garanti Koza and TAY, dated March 18, 2008|
|Decree||Decree of the President of Turkmenistan No. 9429, dated January 27, 2008|
|FET||Fair and equitable treatment|
|Garanti Koza||Claimant Garanti Koza LLP|
|GKI||Garanti Koza Insaat, Turkish parent company of Garanti Koza LLP|
|ICSID||International Centre for Settlement of Investment Disputes|
|ICSID Convention||Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, dated March 18, 1965|
|ICSID Rules||ICSID Rules of Procedure for Arbitration Proceedings, effective April 10, 2006|
|Mem.||Claimant's Memorial on the Merits, dated September 24, 2013|
|MFN||Most favored nation|
|National Plan||National Plan for Developing Turkmenistan Economically, Politically, and Culturally|
|R-__||Respondent's Exhibit [number]|
|Rej.||Respondent's Rejoinder on the Merits and Reply on Jurisdiction, dated April 10, 2015|
|Reply||Claimant's Counter-Memorial on Jurisdiction and Reply Memorial on the Merits, dated October 13, 2014|
|RL-__||Respondent's Legal Authority [number]|
|Rsp. PHB||Respondent's Post-Hearing Brief, dated October 14, 2015|
|Tribunal's Questions||Questions of the Tribunal to the Parties, dated July 30, 2015|
|TAY||State Concern "Turkmenavtoyollary"|
|Tr. ___, 2015 p. _||Transcript of Hearing on the Merits and on the Respondent' s additional objections to jurisdiction held on June 8 -12, 2015, followed by date and page number|
|Closing Tr. ___, 2015 p. _||Transcript of Hearing on Closing Arguments held on December 14, 2015, followed by page number|
|VCLT||Vienna Convention on the Law of Treaties|
|WS-1||First Witness Statement|
|WS-2||Second Witness Statement|
a. Representing the Claimant:
Mr. John Savage Ms. Elodie Dulac King & Spalding Singapore
Mr. Serkan Yildirim Mr. Bariscan Akin Ms. Gülcin Koker Gür Law Firm Istanbul, Turkey
Mr. Murat Isikustun Mr. Ata Alkis Mr. Turgut Demiroglu Garanti Koza LLP
b. Representing the Respondent:
Ms. Alevtina Yakubova Turkmenistan Ministry of Justice
Mr. Ali R. Gürsel Ms. Jennifer Morrison Ersin Ms. Zeynep Gunday Ms. Svetlana Evliya Ms. Gulnara Kalmbach Curtis, Mallet-Prevost, Colt & Mosle LLP Istanbul, Turkey
Ms. Miriam K. Harwood Ms. Christina Trahanas Ms. Katiria Calderón Curtis, Mallet-Prevost, Colt & Mosle LLP New York, New York, United States of America
Ms. Bahar Charyyeva Curtis, Mallet-Prevost, Colt & Mosle LLP Ashgabat, Turkmenistan
a. Mr. Buyuksandalyaci (testifying in Turkish), for Garanti Koza;
b. Mr. Sarybayev (testifying in Russian), for Turkmenistan;
c. Ms. Balakley (testifying in Russian), for Turkmenistan;
d. Mr. Nepesov (testifying in Russian), for Turkmenistan;
e. Mr. Mammetdurdyev (testifying in Turkmen), for Turkmenistan; and
f. Mr. Allamuradov (testifying in Turkmen), for Turkmenistan.
The Tribunal has received: (1) the Respondent's Errata Sheet on the Points of Difference Between Respondent and Claimant, together with the Claimant's Comments on the same; and (2) the Respondent's Corrections to the Turkish, Russian, and Turkmen Translations of Questions Posed in English, together with the Claimant's Comments on those.
All of the corrections proposed by the Respondent and accepted by the Claimant are accepted by the Tribunal.
The Tribunal reserves decision on the points of disagreement until such time as it concludes that any question of substance turns on the parties' differing understandings. In this connection, the Tribunal invites the parties to draw the Tribunal's attention, in their post-hearing submissions, to any disagreement about transcription or translation that could affect a significant point at issue in this arbitration.
The Respondent is requested to advise the Tribunal by 25 April 2016 whether it will voluntarily submit a copy of the Adem Dogan Award. If it agrees to do so, then both the Adem Dogan Award and the lçkale Award will be added to the legal authorities submitted by the parties in this arbitration. If the Respondent does not agree to submit a copy of the Adem Dogan Award by that date, then its application to submit the lçkale Award will be denied.12
The Respondent declined to produce the Adem Dogan Award, so the lçkale Award was not admitted.
DECREE OF TURKMENISTAN'S PRESIDENT
January 27th, 2008 No. 9429,
On concluding contracts on designing and construction of bridges along Turkmenistan's highways, by "Turkmenavtoyollary" state concern
With purpose of implementing the obligations imposed on highway construction industry as foreseen in National Plan "Main Strategy of Developing Turkmenistan Economically, Politically and Culturally until 2020", and implementing the Decree of Turkmenistan's President dated 21st May of 2007 and numbered 8626, I decree as follows:
1. The resolution of "Turkmenavtoyollary" State Concern, stated in 2nd protocol dated 11th December of 2007, on announcing the "Garanti Koza LLP" company (UK) as the winner of the international tender on designing and construction of bridges along Turkmenistan's highways, should be approved.
2. "Turkmenavtoyollary" State Concern should be allowed to conclude contract with total value of 100,000,000 (one hundred million) USD when the tax is included for the added value, with "Garanti Koza LLP" company (UK) on designing and construction of 28 bridges (hereafter bridges) indicated in the annex of this decree, along Mary-Turkmenabad highway. The construction of the bridges must begin in February of 2008 and ready bridges must be delivered in October of 2008.
3. Turkmenistan's Ministry of Economy and Finance must provide the financing of the designing and construction of bridges, at the expense of centralized state investments.
4. Turkmenistan's Central Bank:
should be allowed to conduct the conversion of money amounts of "Turkmenavtoyollary" State Concern in mantas to free convertible foreign currency by official exchange rate, in order to finance the construction of bridges,
should be allowed to pay the 20% of the value of the contract excluding the taxes for the added amount, i.e. 17,391,304 (seventeen million three hundred ninety one thousand three hundred and four) USD advance payment to "Garanti Koza LLP" company (UK) via bank transfer to first degree European bank upon delivery of the return guarantee of the advance payment.
All expenses related with the guarantee letter are paid by UK "Garanti Koza LLP" company.
5. Turkmenistan's Ministry of Energy and Industry must ensure construction and renewal of external conducting lines and structures of electricity provision for illuminating the bridges by its own means.
6. "Turkmenavtoyollary" State Concern, Turkmenistan's Ministry of Water Resources, and other related ministries and state institutions must ensure removal of the bridges that they have currently by its own means.
7. "Turkmenavtoyollary" State Concern must deliver the bridges to Turkmenistan's Ministry of Water Resources in accordance with the annex of this decree after completion of the construction of the bridges.
8. Turkmenistan's Ministry of Economy and Finance, Turkmenistan's State Commodity and Raw Material Exchange, Turkmenistan's Ministry of Construction and Construction Materials Industry and Turkmenistan's State Customs Service must draw up necessary documents for implementing the contract mentioned in 2nd section of this decree.
9. Turkmenistan's Ministry of Construction and Construction Materials Industry must supervise the implementation of regulating requirements for ensuring the reliability and earthquake safety of bridges and separate installation parts, and the quality of the used construction means, and must supervise the implementation of the works foreseen in design documents.
10. The implementation of this decree must be supervised by Vice Chairman of the Cabinet of Ministers of Turkmenistan N. Shagulyyev, Turkmenistan's Minister of Economy and Finance H. Geldimyradov, Turkmenistan's Minister of Water Resources M. Akmammedov, Chairman of "Turkmenavtoyollary" State Concern A. Sarybayev, Chairman of the Directorate of Turkmenistan's Central Bank G. Abilov and Chairman of Turkmenistan's Supreme Supervision Department T. Japarov.
Turkmenistan's President (seal)
Contractor shall follow all the applicable Laws that are in effect on the territory of Turkmenistan. Owner shall assist Contractor in understanding Turkmenistan laws and regulations.45
100% of the price of the listed works mentioned in Schedule B-1will be paid (taking in account 20% for reimbursement of Advance Payment) proportionally for each bridge to the actually done Construction Works for each month.57
Schedule B-1 contains a breakdown of the Contract Price among the 28 bridges and, for each bridge, the percentage allocated to each stage of completion. The Contract specifies the form of the Monthly Progress Certificate to be prepared by the Contractor and provided to the Owner. That form, Exhibit B-3, requires the Contractor to calculate the percentage of actual progress on each bridge in submitting each invoice.58
The amount of the Advance Payment Guarantee shall be diminished proportionally and in the amount of 20% for each payment item, in accordance with all and each of the payment items, listed above, to the CONTRACTOR under the Contract with respect to [sic] with respect to the progress of Works.59
• 5.72% of the "Total Contract Price" will be paid for Mobilization Works;
• 5.72% of the "Total Contract Price" will be paid for Design and Ground Survey Works;
• 100% of the prices listed in Schedule B-1 will be paid for each bridge "to the actually done Construction Works for each month."60
Schedule B-2 also provides for a 5% retention to be paid following completion of the project.61
Owner pays Contractor an advance payment in amount of 20% of the total Contract price excluding VAT which is 17,391,304,00 (seventeen million three hundred ninety-one thousands three hundred and four) US Dollars against the Bank Guarantee on advance payment given by a first class European bank in order to reimburse of Advance Payment, acceptable by the Owner's Bank. Due to time frames imposed by exchange conversion procedures Contractor is advised by Owner to submit this Bank Guarantee latest by 20th day of the month, after which payment of the advance amount shall be made available for Contractor on the fifth (5) day of the next month.65
■ building a 6,000 square meter movable pre-cast factory near the city of Mary. Garanti Koza concluded a contract with Garanti Koza Insaat for the construction of the factory. The factory was used to manufacture the beams and piles to build the bridges. The factory used an advanced steam curing process which allowed Garanti Koza to manufacture piles and beams of stronger quality and more quickly, by improving the drying system;
■ installing a concrete plant, with a computerised mixing system;
■ installing a weight scale for trucks;
■ importing equipment, which included two cranes able to lift 120 tons each, a high- quality cast imported from Germany, excavators, bulldozers, generators, trucks, concrete mixers and pile drivers; and
■ construction of a dormitory and facilities for workers, and the establishment of an office in Ashgabat."69
19 of 28 sites were accepted by a contractor by April 12, 2008, 25 days after the Contract was signed and at least five months before Garanti Koza was in a position to begin bridge construction by drilling piles into the ground. It was not in a position to begin construction not because of any act of TAY but because it did not produce a single pile needed to begin bridge production until July 2008 and did not bring a pile-driving machine to the construction site until September 2008.78
April 26, 2008: Claimant sent its proposed Bank Guarantee to TAY;
April 30, 2008: Raiffeis en Bank, the issuer of the Bank Guarantee, sent a proposed Bank Guarantee to the Central Bank of Turkmenistan, i.e., "the Owner's Bank;"
May 12, 2008: The Central Bank of Turkmenistan sent its comments on the proposed Bank Guarantee;
May 16, 2008: Raiffeisen Bank sent Amendment No. 1 to the proposed Bank Guarantee;
May 26, 2008: Raiffeisen Bank sent Amendment No. 2 to the proposed Bank Guarantee;
July 7, 2008: The Advance Payment was made to Claimant.88
The Advance Payment was used to finance the Project, for mobilisation at the outset and, after February 2009, when the second half was released, to pay its debts and finance further works until June 2009 (including, without limitation, paying for design works, procurement of equipment and materials, salaries of employees - over 600 of them at the pick [sic] of the Project).99
As the bank statement shows, by July 31, 2008, i.e. 20 days after the Advance Payment was received, the balance of Garanti Koza's bank account was only USD 3,818.20. Thus, nearly all of the USD 17.4 million in Advance Payment funds was entirely gone. Over USD 7 million went to the Turkish parent, Garanti Koza Insaat, within the first 4 days after the Advance Payment was received.100
In April 2008, Garanti Koza submitted its first progress payment certificate in keeping with the lump sum pricing provided for in the Presidential Decree and the Contract. To my surprise, this was rejected by Turkmenavtoyollary. I was told by the Control Department of Turkmenavtoyollary that the Ministry of Finance and the Central Bank would not approve payment claims unless they were submitted using detailed cost itemisation pricing based on what is known as "CMETA" (also spelled "SMETA"), instead of lump sum pricing.105
Mr. Sarybayev of TAY confirmed at the Hearing that Garanti Koza's payment application was rejected "because there was no SMETA."106
CMETA is a Russian standard unit pricing structure under which the work is valued by applying fixed prices or rates to the quantities of work done (for instance labour and material), as well as overheads and the profit margin. This is commonly referred to in the construction industry as a "schedule of rates". The prices or rates to be applied to each unit of each item of work are fixed by the Turkmen Ministry of Construction and State Commodity and Raw Material Exchange. In other words, they are fixed unilaterally by Turkmenistan, without reference to the particular contract or the work involved on a particular project.107
Submission of a detailed project smeta is required of all local and foreign contractors performing government contracts in Turkmenistan. The contractor initially prepares and obtains approval from the State Expert Review of its detailed smeta, a detailed cost breakdown of the materials and labor that it plans to use, before the contract's signing or a few months after. The owner of the project monitors the contractor's expenses by checking the contractor's subsequent progress payment certificates against its approved smeta. The purpose of this reporting mechanism is to ensure that the contractor's forecasted costs and expenses are reasonable in light of the work to be performed and that the contractor does not exceed its budget. The smeta system allows incremental payments to the contractor based on the percentages of its completed works.109
The imposition of CMETA by Turkmenistan was totally contrary to the Presidential Decree and the Contract, which did not mention CMETA or any schedule or rates pricing. Rather, the Presidential Decree and the Contract provided for a fixed lump sum price payable by progress payments based on percentage of work completed. This is significantly different from CMETA. Under the lump sum pricing, Garanti Koza was assured of progress payments based on the percentage of work completed at the time of each progress claim.111
We know very well how to work with this SMETA [...]. We wanted to work on a percentage-based progress system, and that was our condition with respect to signing a contract. But unfortunately this was not respected.112
On the contrary, lump sum contracts are standard practice for construction projects in Turkmenistan, yet the smeta requirements are also the standard practice, as all contractors know.
The fact is that smeta must be prepared for all construction contracts in Turkmenistan and this requirement does indeed coexist with, and is applied every day to, lump sum contracts. Claimant's reference to Article 10.3 of the Contract, which refers to payments based on the percentage of work performed, does not conflict with the smeta system. Progress payment certificates based on smetas are prepared based on the percentage of works completed by contractors. Indeed, Form 2, the certificate of works actually performed that is part of every progress payment certificate, includes an indication of the percentage of works.113
If you were to read the Contract thoroughly, it says "based on reports of work performed." A report on work performed implies Form 2, that is how it is known in my country, which is essentially a list of work performed, the unit measurement—the unit of measurement and the price. And that is all in the Contract. I do not remember which schedule to the Contract. Perhaps Schedule Number B-2 […].
The Contractors fill out Form 2, which is a Progress Payment Certificates [sic] and provides to the Owner, the Owner compares it to the Projects, to the SMETA, and in accordance with the SMETA determines the amount that is to be paid.114
Form 2 is the monthly work performed by the Contractor. Well, it shows how much they have done and there is a special form for that. They make the calculation, and derive the amount which shows how much has been done within the month. Based on Form 2, then Form 3 is prepared. We take the final amount from Form 2 and enter it into Form 3, which has its own rules of completion.115
i) preparation of smeta documentation and progress payment certificates; ii) checking the volumes of completed construction works against approved project and smeta documentation, as well as the construction norms and regulations; iii) recording of the completed construction works and providing assistance in drafting of the reporting documentation regarding progress of work as per the schedule; iv) participation in discussions and meetings regarding the changes in project decisions arising in the course of construction works; v) examination of reasons for delays and poor quality of construction works; and vi) revision of smeta documentation in light of changes in volumes of works within the range of project price; etc.118
An expense listed on a contractor's invoice may reflect a higher cost than what a contractor actually paid for a certain material. For example, a subsidiary of the contractor may purchase 10 tons of construction steel for 5,000 USD and re-sell it to the contractor for 6,000 USD. The contractor may then report the steel's cost as 6,000 USD to the owner of the project. The State Expert Review's only task is to check that 6,000 USD is within the price range provided in its price indexes, not the check whether the actual cost of this item to the contractor was 6,000 USD.
In this example, the contractor would then add 6% to 6,000 USD and be entitled to a payment of 6,360 USD for an actual cost of 5,000 USD. Therefore, in reality, no contractor is limited to a 6% profit margin.122
In accordance with Turkmen legislation or legislation of any country, no construction can be done without a project document, without project documentation. And a component, an essential component of project documentation would be SMETA. Everybody has to have a SMETA.125
He added: "The function of the State Review Board is the review of project documentation. "126
PRESIDENT TOWNSEND: Mr. Nepesov, [...] I'm going to ask you to assume that a Government Ministry of Turkmenistan wants a structure built. It doesn't matter what kind of structure, but wants a structure built, and negotiates a contract with a foreign contractor to build that structure for a fixed price of USD 10 million. […] Let's assume that that fixed price is to be paid at the completion of the Project. And let's assume that the Contractor tells the Ministry in the negotiations, that the Contractor tells the Ministry very directly, "We expect to make a 25 percent profit on this Project," and let's assume the Ministry says, "That's okay. We're going to pay you USD 10 million.' And let's assume that the Contractor builds the Project and says, "Here it is. Please pay us our USD 10 million."
Do I understand it correctly--here I'm going to ask you to explain whether I have understood or misunderstood how the law works in Turkmenistan. Do I understand it correctly that the Ministry cannot pay the Contractor the USD 10 million unless the Contractor presents a SMETA which represents that its profit is only 6 percent? Have I understood that correctly?
THE WITNESS: No. I don't think so. […] But if you announce at the [start] it's going to be 20 or 25 percent, I don't think they would give you that profit margin anywhere.
PRESIDENT TOWNSEND: Assume they do. Assume that the Ministry agrees to pay the 10 million knowing that I expect a profit margin of 25 percent, and I succeed and I build the Project, and it only costs me 7 1/2 million to do it. As I understand what you're telling me, I cannot get paid unless I submit what amounts to false data to the Government. Have I understood that correctly?
THE WITNESS: No, it's not quite so, not quite so. Everything is verified. Well, of course, I can buy--I can buy some products with discounts. Of course we cannot verify the factual, the actual price. It's very difficult. It's very challenging to verify the actual price.
PRESIDENT TOWNSEND: Okay. You can't verify it, but you're telling me that I have to falsify it in order to get paid. Do I understand that correctly?
THE WITNESS: Well, I'm having difficulty answering this, Mr. Chairman.
PRESIDENT TOWNSEND: Well, are you having difficulty because you find the answer awkward or because you don't understand the question?
THE WITNESS: The former most likely.128
[T]he word "SMETA" does not have to be said as such. It is implied. There is a law. There is a legal rule that must be complied with. You do not have to have a direct reference to a SMETA in the payments - in the terms of payment or any other section of a contract. It is implied.134
Mr. Buyuksandalyaci observed at the Hearing that "seven Ministries approved this Contract. […] So couldn't at least one of these Ministries say that our Contract is against the rules, laws of Turkmenistan? None of them made such a comment. "135
At present time, the initial data and technical specifications in relation to all bridges, and the act of [land] allocation in relation to 19 bridges have been officially provided by the owner in order to perform the design works for the construction of the aforesaid bridges.
However, Garanti Koza LLP falls behind the schedule [...].150
According to the proposal of the competent authority of Turkmenistan, period of construction works actually prolonged till the November 2009, but unfortunately this period have been breached by you.171
Another letter from TAY to Garanti Koza, dated December 31, 2009, stated:
Upon the proposal made by the competent authorities of Turkmenistan, the date of commissioning was actually moved to November 1, 2009, but even this date was not observed by "Garanti Koza LLP".172
Those letters would seem to document that the deadline was in fact extended to November 1, 2009.
The deceleration of progress on the bridges is evident from the declining amounts for which payment was sought.
THE WITNESS: The Bank Guarantee in Turkmenistan and under current legislation is required for the period of construction for the entire period. When the Bank Guarantee expires, up to that, the Bank does not conduct any operations. The Advance Payment is then depreciated by the end of the Project, and it will be zero, so the bank -- or by the time of the expiration, it should be zero. So the Bank Guarantee is then null and void.
ARBITRATOR LAMBROU: Was any attempt made by Turkmenautoyollari to make further payments after expiration of the Bank Guarantee?
THE WITNESS: Yes, there was an attempt. We tried to pay them, based on the Progress Payment Certificates, based on promises from Mr. Buyuksandalyaci. I personally tried to convince the Bank that we should go ahead and make the payment, but they would not go ahead and make the payment.189
From April 2009 onwards, the Claimant continued to work on Bridge No. 71, and by 31 May 2009 had also progressed works on the second halves of Bridges No. 72, 73, 74, and 75. The Claimant had also substantially completed piling works for one half of Bridge No. 89 by this date. As of this date, the Claimant had completed approximately 29% of the construction by length of all the bridges excluding Bridge No. 63 & No. 88.194
The Respondent asserts that Garanti Koza had effectively abandoned the project by May of 2009.195 It is clear from the evidence that work had effectively ceased by the middle of 2009.
|Certificate of Payment No.||Gross Earned Amount (excl. 15% VAT) (USD)||20% Advance Payment Deduction (USD)||Payment Due (Net of Advance Payment Deduction) (USD)|
These invoices were neither approved nor paid by TAY.199
Taking into consideration all of the cases, Company "Garanti Koza LLP" over a long period of time do not accept any steps on improvement of the existing situation and there is no any guarantee on continuation of construction works and execution of Contract, therefore State Concern "Turkmenavtoyollary" is obliged to use Article 11 "Legal assets and authorities" and Article 17 "Cancellation of the Contact".204
[T]he Turkmen tax authorities did not take further steps to recover Garanti Koza's tax indebtedness and fines, revealed during the December 2009 Tax Audit. The amount of approximately USD1.3 million comprising of the unpaid taxes and the accumulated penalties revealed by the Tax Audit in December 2009 still remains unrecovered as of today.206
In the first week of February 2010, I was informed by one of Garanti Koza's employees in Turkmenistan that a committee comprising representatives of Turkmenavtoyollary, the Ministry of Construction and Turkmenistan's Supreme Supervision Agency came to Garanti Koza's factory in Mary, accompanied by police and military forces. This committee told our remaining employees on site not to touch anything or take anything with them. The committee conducted an inventory and valuation of the equipment and material at the factory. It requested that one of our employees on site sign the inventory and valuation. A copy of the committee's minutes, dated February 4, 2010, containing the inventory and valuation, was provided to one of our employees. After completing the inventory, the committee asked our employees to leave the site of the factory and took it over. We arranged for our remaining Turkish employees to fly back to Turkey the next day.207
N. Events After Withdrawal
THE WITNESS: For 28 bridges, if we gave the Contract over to Net Yapi, then at the end of the Project, they would give the production base; that is, they - or production facilities to the balance sheet of Turkmen Highways.
ARBITRATOR LAMBROU: Is that the production facility which was originally built by Garanti Koza?
THE WITNESS: Yes.222
In interpreting the BIT and other treaty language, the applicable rules of interpretation are found in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (VCLT). The Tribunal cites to the decisions of other tribunals in other investment treaty cases where such decisions help to explain a point, to clarify a concept of international law, or to illustrate how similar issues have been resolved in other cases, but the Tribunal is not in any way bound by such decisions.229
See RL-88, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, November 14, 2005, ¶ 76 [hereinafter: Bayindir v. Pakistan].
The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State [...] and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.
Disputes between a national or company of one Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement in relation to an investment of the former which have not been amicably settled shall, after a period of four [months] from written notification of a claim, be submitted to international arbitration if the national or company concerned so wishes.265
a. The Claimant affirms that it had an investment under the ICSID Convention
a. The Standard Chartered Bank Award (which, the Claimant submits, has limited authoritative value) focused its analysis on the wording of the applicable BIT. That wording is different from that in the UK-Turkmenistan BIT. The latter refers to an investment "of," as opposed to an investment "made," by the investor. The "investment made" wording was at the core of the tribunal's reasoning in Standard Chartered, so the reasoning in that case is not transposable to this one.
b. The facts are distinct: Standard Chartered Bank v. Tanzania involved an indirect investment in Tanzania by a UK company, through several layers of subsidiaries. Garanti Koza instead made a direct investment in Turkmenistan.
c. Unlike the situation presented in the Standard Chartered case, Garanti Koza took all the steps in the life of the investment and was an active, as opposed to a passive investor.
d. The paragraphs of KT Asia v. Kazakhstan and Caratube v. Kazakhstan relied on by Turkmenistan refer to the application of the Salini test and the existence of an investment and are, therefore, irrelevant to the ownership of the investment.
a. None of Turkmenistan's three fact witnesses argued that GKI, as opposed to Garanti Koza, was the investor.
b. The Contract was entered into between Turkmenistan and Garanti Koza and was approved by more than nine Turkmen Government Authorities.
c. The Presidential Decree names Garanti Koza and not GKI.
d. Turkmenistan registered the Project under the name of Garanti Koza, not GKI.
e. All the equipment was either owned or leased by Garanti Koza, showing that Garanti Koza was an active investor.
f. Garanti Koza, not GKI, opened a branch and a bank account in Turkmenistan for the purposes of the Project.
g. Turkmenistan's Central Bank paid the amounts due under Garanti Koza's Certificates of Payment to a bank account in the name of Garanti Koza, not GKI. The location of the bank account in Turkey is irrelevant; Turkmenistan took no issue with this arrangement at the time and even signed Amendment No.1 to the Contract to agree that payment should be made to that bank account.
h. Turkmen Tax Authorities audited Garanti Koza's accounts and never alleged that Garanti Koza was not the actual investor in Turkmenistan.
i. The court proceedings commenced by the Turkmen prosecutor at the request of Turkmen Highways and the resulting decisions were all against Garanti Koza, not GKI.
j. Garanti Koza, not GKI, entered into contracts with subcontractors, such as Net Yapi and Turkmencement.
k. Unpaid creditors of Garanti Koza (which itself was not being paid by Turkmenistan) commenced suits against Garanti Koza, not GKI, before Turkmen courts, as seen in the documents relating to these proceedings produced by Turkmenistan.
l. Unpaid employees commenced suits against Garanti Koza, not GKI, before Turkmen courts, showing that Garanti Koza was their employer.
m. Turkmenistan's submission that "it also appears that no one in Garanti Koza had decision making power for the company" is incorrect. Garanti Koza is a limited liability company, consisting of three partners; Garanti Koza Insaat, which owns 45%, IP (International) Consult Ltd., which also owned 45% until it was replaced by one of its affiliates (Eurasia Motors), and Mr. Turgut, who owns 10%. Important decisions, such as entering into the Contract, the Factory Agreement and the Know-How Agreement, were made after discussion and with the agreement of all three partners.
n. The Know-How Agreement provided for the know-how needed and used for the Project, which included advanced technology not available at that time in Turkmenistan. The Know-How Agreement was approved by all three partners of Garanti Koza. It is severe for Turkmenistan, the Claimant argues, "to basically accuse Garanti Koza of fraud and to state that 'the only other explanation for this curious contract [i.e. the Know-How Agreement] is that it is a mechanism to divert funds to Garanti Koza Insaat.'"
a. The Contract implemented, in part, the National Plan of Turkmenistan and a Presidential Decree for the renovation of Turkmenistan's infrastructure.
b. In Turkmenistan, the Contract and the Project were considered to create an "administrative law relation" and not to be of a commercial nature. This appears from the law relied upon and the procedure followed by Turkmenistan before the general prosecutor and the Turkmen courts. The procedure Turkmenistan followed for the termination of the Contract, through the involvement of the Supreme Control Chamber (which deals with public funds), indicates that neither Turkmen Highways nor Turkmenistan was acting as a private party in a purely commercial relationship.
c. The Contract was approved by several Turkmen Government Authorities, while the Presidential Decree lists over ten governmental bodies involved in the performance of the Contract.
d. The Presidential Decree states that the Project is to be financed from the State budget. The few invoices of Garanti Koza that were paid were paid by the Central Bank of Turkmenistan.
e. Mr. Nepesov, called by Turkmenistan as a fact witness, referred in his First Witness Statement to "public law works" and "governmental contracts."
• "Moveable and immoveable property and any other property rights such as mortgages, liens, or pledges;"
• "Claims to money or to any performance under contract having a financial value;" and
• "Intellectual property rights, goodwill, technical processes, and know-how."332
It is those bilateral and multilateral treaties which today are the engine of ICSID's effective jurisdiction. To ignore or depreciate the importance of the jurisdiction they bestow upon ICSID, and rather to embroider upon questionable interpretations of the term "investment" as found in Article 25(1) of the Convention, risks crippling the institution.343
Investments of nationals or companies of either Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as "expropriation") in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation. Such compensation shall amount to the genuine value of the investment expropriated immediately before the expropriation or before the impending expropriation became public knowledge, whichever is the earlier, shall include interest at a normal commercial rate until the date of payment, shall be made without delay, be effectively realisable and be freely transferable.
a. The "seizure" of the Claimant' s factory, sale of its equipment,368 and the expulsion of its employees from the factory site on February 4, 2010, by a committee comprising representatives of Turkmen Highways, the Ministry of Construction, the Ministry of Internal Affairs, the Turkmen Intelligence Agency, a prosecutor/district attorney and other government personnel.369
b. The termination of the Contract by a letter from TAY dated February 22, 2010, thereby causing the alienation of the Claimant's contractual rights.370
c. The wrongful judgments of the Turkmen courts obtained by the public prosecutor in March and May 2010 at the request of TAY.371
a. The Respondent's repudiation of the Project's lump sum pricing and the imposition of itemized cost pricing;
b. The Respondent's failure to pay sums due to Garanti Koza;
c. The Respondent's wrongful imposition of a delay penalty;377 and
d. Turkmenistan's failure to notify the Claimant of the measures taken.
a. An obligation to act in a constant manner, free of ambiguity, to avoid arbitrary action, not to frustrate the investor's legitimate expectations, and to provide a stable and predictable legal and business environment for the investment;388
b. An obligation to "do no harm," to cooperate with the investor, and to act proportionally;389
c. An obligation not to coerce or harass the investment;390
d. An obligation to act transparently;391 and
e. An obligation to act in good faith.392
a. Frustrating Garanti Koza's legitimate expectations by changing the price it would receive for the project and thus the return on its investment, which was the most critical element underlying its decision to invest. This was a result of the change from a lump sum price of USD 100 million set out in the Contract and the Presidential Decree, to be paid in percentage instalments as work was completed, to a different pricing and invoicing mechanism using a Smeta-based system requiring costs to be itemized. The Claimant's legitimate expectations were further frustrated by Turkmenistan' s failure to make monthly progress payments. Such actions constituted inconsistent conduct by Turkmenistan and resulted in a lack of stability of the legal framework for the investment.
b. Actively doing harm to the investment and failing to cooperate. The fines for delay and termination of the Contract were disproportionate to any delay, and in any event an extension of the completion date was mandated under the Contract and ordered by the Turkmen President.
c. Turkmenistan coerced Garanti Koza into applying a pricing and invoicing regime different from the lump sum pricing set out in the Presidential Decree and the Contract and pressured Garanti Koza to continue work while not making payments which were owed.
d. Turkmenistan harassed Garanti Koza by: (i) imposing a delay penalty and terminating the Contract in May 2009 and February 2010; (ii) applying to the Chief Prosecutor to start proceedings against Garanti Koza in February 2010; (iii) seizing Garanti Koza's factory in February 2010; (iv) acts by the Chief Prosecutor endorsing Turkmen Highways' February 22, 2010 application and filing suit with the Turkmen courts within a day of that application; and (v) the imposition of a fine in February 2010 by the tax administration.393
a. First, Turkmenistan failed to pay the Claimant the price of construction works under the Presidential Decree and the Contract in the specified timeframe and manner,404 by:
i. Imposing Smeta in breach of (a) Paragraph 2 of the Presidential Decree; (b) Article 4 of the Contract; (c) Article 10 of the Contract Conditions; and (d) Schedule B-2 (Terms of Payment) of the Contract.
ii. Failing on or after January 29, 2009, to make monthly payments, in breach of (a) Article 10 of the Contract; and (b) Schedule B-2 of the Contract.
b. Second, the delay penalty violated Article 7(4) of the Contract, which requires Turkmenistan to extend the completion date in case it " fails to make payments and fulfil its financial responsibilities... or allows delays in providing land, maps and diagrams." 405 The delay penalty was also contrary to the agreed extension of completion until November 1, 2009.
c. Third, termination of the Contract by Turkmenistan was contrary to Article 17.1 of the Contract, because (i) having repudiated the core provisions on price, the Respondent cannot be allowed to invoke Article 17.1; and (ii) contrary to Article 17.1, Turkmenistan has not paid Garanti Koza "for the amount of completed works including executed work, imported material and equipment and concluded purchases, demobilization of Contractor and repatriation of employees. "406
d. Fourth, Turkmenistan violated Article 3.7 of the Contract by not handing over the sites promptly. Article 3.7 requires Turkmenistan to "acquire and provide legal and physical handing over of the Site to the Contractor. "407
e. Fifth, the Claimant claims that Turkmenistan violated paragraph 6 of the Presidential Decree, which required various ministries to "ensure the removal of various bridges." It also violated Schedule A-3 (14) of the Contract, in which TAY undertook the obligation to arrange with various ministries and departments to demolish existing bridges and clear the sites of debris.408
f. Sixth, Article 3.7 of the Contract states that the "Owner shall provide all necessary technical information and data for designing and construction of bridges from local authorities of Turkmenistan." Schedule A-3(2) of the Contract required that final topographical plans about the sites be provided. The Claimant claims breach of these provisions.409
• The statement "Turkmenistan's Failure to Hand over Sites" is followed by "Under the Contract Turkmen Highways was required to hand over the sites" and "Turkmen Highways failed to comply with its obligation."
• "Turkmenistan's Failure to Demolish Existing Bridges" is followed by "fundamental obligation of Turkmen Highways under the Presidential Decree and the Contract was to remove the existing bridges and clear debris."
• The Claimant argues that, "given Turkmenistan's misconduct towards Garanti Koza and its growing hostility towards Turkish investors more broadly, Garanti Koza had every expectation that if it issued a letter of guarantee again, Turkmen Highways would immediately call on the guarantee."419
The Respondent thus argues that, while the Claimant refrains from alleging that the Respondent is a party to the Contract, the Claimant' s case in fact rests on the assumption that the Respondent is somehow answerable for the contractual obligations of Garanti Koza's contracting partner, TAY.
• Was the Claimant actually entitled to a particular payment?
• Had the Claimant fulfilled its corresponding contractual obligations?
• Was the imposition of a delay penalty appropriate in the circumstances?
• Were there valid grounds for contract termination and were the procedures for termination properly carried out?