Enter to open, tab to navigate, enter to select
ICSID tribunal dismisses ECT claim against Turkey
Practical Law Legal Update 2-422-4892 (Approx. 3 pages)
ICSID tribunal dismisses ECT claim against Turkey
| Published on 03 Sep 2009 • International, USA |
Marinn F. Carlson (Partner) and Aaron J. Wredberg (Associate), Sidley Austin LLP
In Europe Cement Investment & Trade S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/07/2 (ECT), an ICSID tribunal declined jurisdiction over a claim brought by a Polish company against the Republic of Turkey. The case presented the "unusual circumstance" in which both parties argued that the case should be dismissed for lack of jurisdiction, although the parties disagreed on the precise basis for the lack of jurisdiction and the effects of dismissal. The tribunal determined that Europe Cement had abused the arbitral process with an apparently fraudulent claim to ownership of two Turkish electricity companies. The tribunal dismissed the case and ordered Europe Cement to pay Turkey's full costs of the arbitration, although it declined to award moral damages to Turkey.
Facts
Europe Cement Investment & Trade S.A. (Europe Cement), a Polish company, claimed to own stakes in two Turkish electricity companies, CEAS and Kepez. This claim was one of several brought by businesses connected with the Uzan family arising out of Turkey's 2003 termination of electricity concessions granted to CEAS and Kepez. The critical question for the jurisdictional phase of the ICSID case was whether Europe Cement acquired shares in CEAS and Kepez prior to the alleged termination of the electricity concessions on 12 June 2003.
As evidence of its holdings in CEAS and Kepez, Europe Cement submitted photocopies of what it claimed were share transfer agreements dated May 2003, along with notarised copies of share certificates in CEAS and Kepez that were reissued in 2005. Turkey requested that Europe Cement submit originals of the alleged share transfer agreements and share certificates for forensic analysis. The tribunal ordered Europe Cement to produce these documents, but, despite repeated extensions of time, Europe Cement failed to comply with the tribunal's order.
Turkey argued that Europe Cement's failure to product these key documents, along with several other irregularities, proved that Europe Cement had never owned stakes in CEAS and Kepez. Turkey requested four forms of relief: dismissal of the case with prejudice for lack of jurisdiction, a declaration that the claim was "manifestly ill-founded, and has been asserted using inauthentic documents," full costs of the arbitration, and moral damages.
In response, Europe Cement wrote to the tribunal and also requested dismissal of the case for lack of jurisdiction due to the company's "inability to show the shares legally acquired by our company." Turkey opposed a voluntary dismissal unless Europe Cement also agreed to all of the relief Turkey had requested.
Decision
As a threshold matter, the tribunal rejected Europe Cement's argument that the parties' agreement that the Tribunal lacked jurisdiction required a peremptory dismissal without further analysis. The tribunal found that a dispute remained as to the precise basis for the lack of jurisdiction and the effects of dismissal. Therefore, it was not precluded from issuing a reasoned award or considering Turkey's additional arguments and requests for relief.
The tribunal noted that Europe Cement's admission that it could not establish jurisdiction was sufficient for dismissal. Nevertheless, the tribunal proceeded to review the evidence presented in the case and determined that "even if the claimant has not made such a concession, the tribunal would have concluded that the evidence before it compelled the conclusion that Europe Cement did not own shares" at the jurisdictionally relevant time. The tribunal said that the evidence supported a strong inference that Europe Cement's claim was fraudulent, and concluded that it constituted an abuse of process.
The tribunal awarded Turkey its full costs of the arbitration, including approximately $3.9 million in legal costs. But despite finding fraud and abuse, the tribunal declined to award Turkey moral damages for reputational harm. The tribunal held that moral damages such as those awarded in Desert Line v. Yemen, (ICSID Case No. ARB/05/17) are appropriate in investor-state cases in exceptional circumstances, such as the physical duress present in the Desert Line case, and that such circumstances did not exist in this case. With regard to reputational harm, the tribunal found that the decision itself, including an award on costs, was adequate remedy.
Comment
The Europe Cement decision under the ECT joins several recent investor-State cases brought under bilateral investment treaties that have invoked a "good faith" requirement (for example, Inceysa v. El Salvador (ICSID Case No. ARB/03/26) and Phoenix Action v. Czech Republic (ICSID Case No. ARB/06/5)). The Europe Cement decision is also one of a handful to address moral damages, although it highlights the difficulty that respondent states face in obtaining an award of moral or punitive damages against an investor.