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Decision on the Objection to Jurisdiction for Lack of Consent

FREQUENTLY USED ABBREVIATIONS AND ACRONYMS
BIT Bilateral Investment Treaty
Claimant’s Counter-Memorial Counter-Memorial on the Objection to Jurisdiction for Lack of Consent of January 11, 2013
Decision Decision of the Tribunal on the Objection to Jurisdiction for Lack of Consent
ECT Energy Charter Treaty of 1994
Garanti Koza or the Claimant Garanti Koza LLP
ICC Arbitration Arbitration conducted under the Rules of the International Chamber of Commerce
ICSID or the Centre International Centre for Settlement of Investment Disputes
ICSID Arbitration Arbitration conducted under the ICSID Rules
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States of March 18, 1965
ICSID Rules ICSID Rules of Procedure for Arbitration Proceedings
MFN Most Favored Nation
Request Request for Arbitration of May 18, 2011
Respondent’s Memorial Memorial on the Objection to Jurisdiction for Lack of Consent of November 30, 2012
Respondent’s Reply Reply on the Objection to Jurisdiction for Lack of Consent of February 22, 2013
Switzerland-Turkmenistan BIT or Switzerland BIT Accord entre le Conseil federal suisse et le Gouvernement du Turkménistan concernant la promotion et la protection réciproque des investissements
Turkmenistan or the Respondent Turkmenistan
UK.-Turkmenistan BIT or UK. BIT or the BIT Agreement for the Promotion and Protection of Investments concluded between the United Kingdom of Great Britain and Northern Ireland and the Government of Turkmenistan
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL Arbitration Arbitration conducted under the UNCITRAL Rules
UNCITRAL Rules Arbitration Rules of the United Nations Commission on International Trade Law
Vienna Convention Vienna Convention on the Law of Treaties of 1969

I. BACKGROUND

A. The Dispute

1.
The Claimant, Garanti Koza LLP ("Garanti Koza" or the "Claimant"), a limited liability company incorporated in the United Kingdom, submitted a Request for Arbitration (the "Request") dated May 18, 2011 to the Secretary-General of the International Centre for the Settlement of Investment Disputes ("ICSID" or the "Centre") on May 19, 2011. In that Request, Garanti Koza demanded institution of arbitration proceedings against Turkmenistan ("Turkmenistan" or the "Respondent") under the terms of a bi-lateral investment treaty (a "BIT") entitled 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 (the "U.K.-Turkmenistan BIT" or "U.K. BIT" or "the BIT"). Garanti Koza supplemented its Request by letters dated July 4, 11, 13 and 19, 2011. The Secretary-General of ICSID registered the Claimant’s Request on July 20, 2011.
2.

According to the Claimant’s Request for Arbitration:

The present dispute arises out of the investments on the 28 highway bridges and overpasses in Turkmenistan. A contract regarding the investments in Turkmenistan numbered 01/2008 and dated 18.03.2008 for the lump sum price of USD 100,000,000 ("Contract") was entered into by and between State Concern Turkmenautoyollari as the owner and Garanti Koza LLP as the contractor for the execution of the projection, construction, and installation works of 28 highway bridges and overpasses.

...

(1) In breach of its obligations, by using the state power, the Respondent has avoided to make the payments it has undertook to pay, tried to change the contract regarding the investment which is established as a lump sum price contract into unit price contract, made requests which contradict with its rights and obligations, tried to change the terms and conditions of the Contract to the favor of the Respondent and tried to prevent the continuation of the works in various ways, thus did not fulfill its obligations.

(2) Garanti Koza LLP suffered losses and damages as a consequence of the Respondent’s intention to confiscate the assets and investments of Garanti Koza LLP by not performing its related obligations and attempt to undermine the investment.1

3.
The Respondent summarizes the dispute between the parties in somewhat different terms:

On March 18, 2008, Garanti Koza LLP, a U.K.-registered entity controlled by the Turkish company Garanti Koza Insaat Sanayi ve Tikaret A.S., and Turkmenavtoyollary, the highway authority, concluded a construction contract for the design and construction of 28 highway bridges and overpasses on the Mary-Turkmenabad highway in Turkmenistan (the "Contract"). In 2009, Garanti Koza LLP suspended all the works under the Contract with Turkmenavtoyollary. The parties to the Contract exchanged their views on the dispute related to the performance of the Contract by correspondence and in person, but this did not result in a resolution of the dispute. On February 22, 2010, Turkmenavtoyollary invoked termination of the Contract under Article 17 of the Contract Conditions, in view of the Contractor’s failure to complete the work on time and failure to resume works for a prolonged period of time.2

B. The Tribunal

4.

The Arbitral Tribunal was constituted in accordance with Articles 37(2)(b) and 38 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("ICSID Convention"):

• The Claimant appointed Mr. George Constantine Lambrou of Athens, Greece as an arbitrator on September 26, 2011. Mr. Lambrou accepted his appointment on October 7, 2011.

• The Respondent appointed Professor Laurence Boisson de Chazournes of Geneva, Switzerland as an arbitrator on October 18, 2011. Prof. Boisson de Chazournes accepted her appointment on October 26, 2011.

• The Chairman of the ICSID Administrative Council appointed Mr. John M. Townsend of Washington, D.C., U.S.A., as President of the Tribunal on April 10, 2012. Mr. Townsend accepted his appointment on April 13, 2012.

Mr. Marco Tulio Montañés-Rumayor, Legal Counsel to ICSID, was appointed to act as Secretary to the Tribunal.

5.
The Tribunal was formally constituted on April 13, 2012. The members of the Tribunal submitted their signed declarations in accordance with Rule 6(2) of the ICSID Rules of Procedure for Arbitration Proceedings ("ICSID Rules") and copies of those declarations were distributed to the parties by the Secretary.3
6.
After postponements made at the request of the parties, a first session of the Tribunal with the parties was held in Washington, D.C. on October 19, 2012 (the "First Session"). At the First Session, the parties confirmed that the Tribunal was properly constituted and that neither party had any objection to the appointment of any member of the Tribunal.4

C. Objections to Jurisdiction

7.
In response to a request for comments on a proposed agenda for the First Session, the Respondent informed the Tribunal that the "Respondent has objections to jurisdiction that are separate and distinct from the merits and warrant bifurcation."5 In response to a request from the Tribunal for a more specific description of its objections to jurisdiction, the Respondent sent a letter to the Tribunal on September 5, 2012 specifying two grounds upon which it objected to jurisdiction:

Respondent hereby informs the Tribunal that it intends to assert jurisdictional objections on the following grounds: (i) Turkmenistan did not consent to ICSID jurisdiction under the Agreement between the United Kingdom and Turkmenistan for the Protection and Promotion of Investments ("U.K.-Turkmenistan BIT") and (ii) most of the claims brought by Claimant are contractual in nature and therefore not within the jurisdiction of this Tribunal.

First, the Tribunal does not have jurisdiction to decide the merits of this dispute due to the lack of Turkmenistan’s consent to ICSID arbitration under Article 8 of the UK-Turkmenistan BIT. The BIT specifically requires that in order for a dispute to be submitted to ICSID, an agreement to ICSID arbitration between the investor and the BIT’s Contracting Party must exist. Respondent respectfully submits that in the absence of Turkmenistan’s consent to submit this dispute to ICSID, this Tribunal does not have jurisdiction over the claims brought by Claimant.

Claimant has attempted to import into the UK-Turkmenistan BIT an alleged consent by Turkmenistan to ICSID arbitration contained in another BIT. Claimant’s reliance on Article 3 of the UK-Turkmenistan BIT to bypass the essential requirement of the State’s consent to ICSID arbitration is to no avail. That consent cannot be imported from a different BIT when Turkmenistan manifestly did not give such consent in the basic BIT. As is clear from the wording of Article 8 of the UK Turkmenistan BIT, the Contracting Parties expressly agreed that there could be no ICSID arbitration of a dispute in the absence of a specific agreement between the investor and the Contracting Party to submit the dispute to ICSID.

Secondly, it is clear that most of Claimant’s claims are contractual in nature. They arise under the Contract concluded between Garanti Koza LLP and Turkmenavtoyollary, by which the Claimant agreed to resolve disputes "of any kind" pursuant to the dispute-resolution mechanism of Article 21 of the Contract Conditions. The dispute-resolution mechanism agreed to by the Claimant provided for the jurisdiction of the Arbitration Court of Turkmenistan, with a possibility of subsequent submission of the dispute to an arbitral tribunal in The Hague. The Claimant has invoked the mechanism under the BIT in order to avoid the dispute resolution mechanism provided for in the Contract, as Turkmenistan will show.6

8.
At the First Session on October 19, 2012, the parties agreed, without prejudice to the Respondent’s objections to jurisdiction, that this proceeding would be conducted in accordance with the ICSID Arbitration Rules in force as of April 10, 2006, at the seat of the Centre in Washington, D.C.7
9.
Also at the First Session, it was agreed pursuant to ICSID Rule 41(4) that the Respondent’s first objection to jurisdiction (that Turkmenistan did not consent to ICSID jurisdiction) would be considered as a preliminary matter on an accelerated schedule, while the Respondent’s second objection to jurisdiction (that most of the claims brought by the Claimant are contractual in nature) would be considered together with the merits of the dispute, if the Tribunal were to reach the merits. Pursuant to the schedule established at the First Session and incorporated into Procedural Order No. I,8 the Respondent submitted its Memorial on the Objection to Jurisdiction for Lack of Consent ("Respondent’s Memorial") on November 30, 2012. The Claimant submitted its Counter-Memorial on the Objection to Jurisdiction for Lack of Consent ("Claimant’s Counter-Memorial") on January 11, 2013. And the Respondent submitted its Reply on the Objection to Jurisdiction for Lack of Consent ("Respondent’s Reply") on February 22, 2013. The Claimant waived its right to submit a rejoinder in the interest of compressing the schedule.9
10.

On March 11, 2013, a hearing was held at the seat of the Centre in Washington, D.C., to hear argument on the Respondent’s Objection to Jurisdiction for Lack of Consent. The following persons attended that hearing:

For the Claimant:

Mr. John Savage, King & Spalding LLP
Ms. Elodie Dulac, King & Spalding LLP
Mr. Serkan Yildrim, GUR Law Firm
Ms. Gülcin Kôker, GUR Law Firm
Mr. Murat Isikustun, Vice President Finance and Administration, Garanti Koza LLP

For the Respondent:

Mr. Peter M. Wolrich, Curtis, Mallet-Prevost, Colt & Mosle LLP
Mr. Ali R. Gursel, Curtis, Mallet-Prevost, Colt & Mosle LLP
Ms. Claudia Frutos-Peterson, Curtis, Mallet-Prevost, Colt & Mosle LLP
Ms. Sabrina A. Ainouz, Curtis, Mallet-Prevost, Colt & Mosle LLP
Mr. Ali Topalogu, Curtis, Mallet-Prevost, Colt & Mosle LLP
Ms. Gülperi Yôrüker, Yurttutan Gurel Yôrüker
Ms. Berin Hikmet, Yurttutan Gurel Yôrüker

The Tribunal:

Mr. John M. Townsend, President
Professor Laurence Boisson de Chazournes, Arbitrator
Mr. George Constantine Lambrou, Arbitrator

ICSID Secretariat:

Mr. Marco Tulio Montañés-Rumayor, Secretary of the Tribunal
Mr. William Prewett, court reporter, also attended the hearing and made a transcript of the proceedings.10

11.
At the conclusion of the hearing on March 11, 2013, the Tribunal took the Respondent’s Objection to Jurisdiction for Lack of Consent under advisement.
12.
This Decision on the Objection to Jurisdiction for Lack of Consent (the "Decision") sets forth an analysis of the issues presented by the Respondent’s first objection to jurisdiction and the reasons for which a majority of the members of the Tribunal ultimately rejects that objection and concludes that the Tribunal has jurisdiction to hear this dispute. Professor Boisson de Chazournes disagrees with the analysis set forth in this Decision and with the conclusions reached by the majority, for reasons explained in her Dissenting Opinion (the "Dissenting Opinion").

II. ANALYSIS

A. The Objection to Jurisdiction for Lack of Consent

B. The U.K.-Turkmenistan BIT

C. The Requirement of State Consent to Arbitration

D. Has Turkmenistan Consented to Arbitration?

E. What Kind of Arbitration?

F. The Most Favored Nation Clause

1. MFN Clauses and Arbitration Provisions

2. Does an MFN Clause Create Rights?

3. General vs. Specific Language

4. Effet Utile

5. Contemporaneity

6. Interpretation of Article 3(3)

G. Application of the MFN Clause to the Arbitration Article

1. May Consent to ICSID Arbitration Be Provided Via an MFN Clause?

2. Does the U.K.-Turkmenistan BIT Provide Less Favorable Treatment than the Switzerland-Turkmenistan BIT?

III. COSTS

98.

Both parties have asked for an award of costs. The Respondent has asked for all costs related to this arbitration, including its legal fees.135 The Claimant has asked for all costs associated with the Respondent’s Objection to Jurisdiction for Lack of Consent.136

99.
The Tribunal reserves all questions of costs until the conclusion of this proceeding.

IV. DECISION

100.
For the reasons set forth above, the Tribunal decides as follows:

a. The Respondent’s Objection to Jurisdiction for Lack of Consent is rejected.

b. The Tribunal will proceed to a consideration of the merits of the Claimant’s claim, to which it will join the Respondent’s second objection to jurisdiction, on a schedule to be established after consultation with the parties.

c. All questions of costs are reserved.

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