Miran Legal

Attorney

20.09.2022

International Investment Arbitration

Within the Scope of ICSID Arbitration:

            In Turkish law, the international arbitration method is often accepted in the resolution of disputes that have an element of foreignness. Currently, arbitration is also being conducted in international contracts on investment, which are an intensive part of interstate relations.

 

            Currently, the foreign capital investments made directly or indirectly contribute to the development of international trade conducted between countries. From the point of view of states, the inflow of foreign capital into the country is considered a development, and such international investments are supported and encouraged.

 

            With encouragements, supports and protective provisions, it is aimed to attract foreign investors to the country and economically strengthen the country. As a result of this situation, one problem is where the resolution authority will be when a dispute occurs. In investment disputes, the dispute is resolved through international arbitration, especially ICSID.

 

            It is possible to divide the arbitration as a method of resolving investment disputes into two types from the parties' point of view. The first of these is Host State, that is, arbitration as a method of resolving disputes between the host state in which the investment is made and a citizen of the state. The second type is called State to State Arbitration, which is a method of resolving disputes between the host state in which the investment was made and the other investor state.

 

            1.)Arbitration as a Method of Resolving Disputes Between the Host State in Which the Investment was Made and a Citizen of a Party State 

            Today, the authority of dispute resolution in bilateral investment treaties is the arbitration of the international investment arbitration centre, aka the ICSID which was established by “Convention on the Settlement of Investment Disputes Between States and Citizens of Other States” to which Turkey is also a party.

 

            International agreements on the “Protection and Encouragement of Investments” signed between countries, as well as ICSID arbitration, are generally Decisively agreed upon. Since the ICSID Convention is an interstate agreement, in order for an investment dispute to be brought to ICSID Arbitration, it must be accepted and consented to by the relevant states. Therefore, it does not seem to be bodily and legally possible to take an investment dispute to ICSID without the consent of the state.

 

            In order for a dispute to be brought to ICSID Arbitration:

1.)   The host state and the state to which the investor belongs to must be parties to ICSID
2.)   The parties' consent must be obtained for the dispute to be considered in ICSID arbitration
3.)   The dispute must have been caused by an investment.
 

All three of the conditions considered must be present in the concrete event. In the absence of even one condition, the dispute will not be brought to ICSID Arbitration. For the use of jurisdiction in the Centre, in addition to the ICSID agreement between the relevant states, there must also be a special agreement between the investor and the host state in the concrete event that provides for the authority of ICSID Arbitration and includes mutual consent. After the parties have submitted their consent, in accordance with ICSID Convention, article 25, no party can unilaterally undo this confirmation.

 

The parties may express their consent which provides the Centre with authority to resolve investment disputes. The consent may be expressed through the defendant's declaration of direct or tacit consent at the stage of application to arbitration, with investment contract or an investment promotion and protection agreement between the investor state and the host state, or through provisions providing for ICSID arbitration between the laws of the host state.

 

Another condition, the requirement that the dispute has to be caused by an investment, is determined through interpretation. The concept of investment has not been defined in the ICSID Convention. However, due to the fact that the Convention is an interstate agreement, the rules contained in it are also resolved within the framework of international law. Article 25 of the ICSID Convention states that it “covers legal disputes arising from investments”. But this statement has a rather broad meaning. Therefore, the details of the concrete event will be taken into account when determining whether an investment dispute exists or not. As a legal definition, the concept of an investment dispute refers to disputes arising from a contract (license, know-how, concession, exception, management, etc.) between the parties on the current investment. 

 

Article 42 of the ICSID Convention regulates the law to be applied to the principle by arbitrators and the method of determining this law. Accordingly, the delegation will make a decision on the dispute in accordance with the rules of law to be agreed upon by the parties. If they cannot reach an agreement, the delegation will apply the law of the Contracting country that is a party to the dispute and the applicable rules of International law.

 

The main difficulty in the regulation contained in Article 42 of the Convention arises if the parties do not agree on any law. In accordance with the relevant article of the ICSID Convention, if the applicable law is not agreed by the parties, the law of the contracting country that is a party to the dispute will be applied. This has various risks for the foreign investor. Because the host state has full authority to change, cancel or interpret its domestic law in different ways. For this reason, this situation is limited by the principles of international law in the ICSID Convention. With this limitation, it is aimed to protect the foreign investor against the instabilities and risks that may occur in the law of the host state.

 

On the cancellation of decisions, one of the parties may request the decision to be invalidated by a written application to the General Secretariat, citing one or more of the following cases;

a) The delegation was not formed in an appropriate way,

b) The delegation has exceeded its authority,

c) One of the members of the delegation received a bribe,

d) Serious deviation from the rules and principles of the basic proceedings by the delegation,

e) The grounds on which the decision is based are not specified, or inappropriate

 

The application of cancellation must be submitted within 120 days of the decision, and within 3 years of the decision at any case. In case of a bribery, an application for cancellation must be made within 120 days after the appearance of the bribe.

 

ICSID decisions that have not been appealed or canceled as a result of the appeal within the period of time will be binding on the parties, will not be taken to a higher authority, will be executed in the same way as local court decisions. The parties shall comply with the decision and comply with its provisions unless the execution of the decision is stopped. An appeal or a direct decision cannot be objected in local courts.

 

2.)Arbitration as a Method of Settlement of Disputes Between the Host State in Which the Investment is Made and the Investor of the Other State Party (or State Party Institutions and Organizations) (State to State Arbitration)

In this arbitration model, the subject is the settlement of investment disputes between the state in which the investment was made and the other state party to the agreement (or public institutions or organizations).

 

In this regard, the states conclude "Protection and Encouragement of Investments” agreements among themselves. As a matter of fact, Turkey has made such agreements with many states and similar arbitration clauses have been repeated. In bilateral investment agreements, the host state guarantees a number of rights to the investor state or its institutions and organizations. When the host state violates its obligations in the contract, the investor state will also have to apply to arbitration to claim their rights.

 

            In accordance with the Agreement on Mutual Protection and Encouragement of Investments signed between Turkey and the USA, the parties have agreed to ICSID Arbitration in case of an investment dispute that may occur. Even the investment dispute was not explicitly defined in the ICSID Convention, the investment dispute was defined in the Investment Agreement between Turkey and the United States. In accordance with this agreement, the application or interpretation of the investment agreement means disputes arising from the application or interpretation of the investment permit or the claim that any rights granted or created by this Agreement have been violated. If the parties have signed a Convention on investment disputes similar to this definition, ICSID Arbitration is mostly envisaged in the Investment Agreement.

 

In turn, in the Agreement on the Protection and Encouragement of Investments with Qatar; electoral authorities for dispute resolution have been established. Accordingly, the current dispute can be resolved through; 1.) the competent court of the Contracting Party in the territory of the investment in question, 2.) the International Center for the Settlement of Investment Disputes (ICSID), if allowed by the contract, 3.) an arbitration court (UNCITRAL) to be established for this purpose in accordance with the arbitration rules of the United Nations Commission on International Trade Law. Each party to the investment dispute that has chosen one of the ways of resolving the dispute mentioned above will not be able to follow the other two ways. The Agreement on Mutual Promotion and Protection of Investments between Turkey and Qatar entered into force in 2007, and Qatar entered the ICSID Convention in 2011. This shows that due to the fact that electoral dispute resolution methods were taken when Qatar was not a member of the ICSID Convention at the time of the investment agreement. Therefore, it can be said that Turkey provides selective arbitration methods in its investment agreements with countries that are not parties to the ICSID Convention.

 

CONCLUSION

International Investment Law includes rules of law aimed at encouraging and protecting investments to be made between the host state and another state or a foreign investor, as well as the investor and basically regulating the principles related to this. In this type of dispute, various arbitration models are envisaged between the parties. The most common arbitration model in Investment Law today is ICSID Arbitration. In this article, the concept of international investment law disputes was explained within the scope of ICSID Arbitration.