Reproduced from www.worldbank.org/icsid with permission of ICSID. (Document, does not apply to summary below).
Alapli Elektrik v. Turkey (ICSID Case No. ARB/08/13)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on July 16, 2012 and is publicly available in a redacted form. A request for annulment was registered on November 16, 2012 and the decision dismissing the application in its entirety was rendered on July 10, 2014.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT and the Netherlands-Turkey BIT (1986), arising out of an alleged breach of the standard of fair and equitable treatment (Art. 10(1) of the ECT and Art. 3(1) of the BIT), national treatment, full protection and security (Art. 10(1) of the ECT and Art. 3(2) of the BIT), the umbrella clause (Art. 10(1) of the ECT and Art. 3(2) of the BIT) and expropriation (Art. 13 of the ECT, Art. 5 of the BIT) (¶ 321). The dispute was submitted to an ICSID arbitral tribunal according to Article 26(4)(a)(i) of the ECT.
Any third parties or parallel proceedings:
Factual surrounding, including procedural history:
Claimant was Alapli Elektrik B.V. ("Alapli"), a company incorporated under the laws of the Netherlands, and respondent was the Republic of Turkey ("Turkey") (¶¶ 3-4).
The dispute concerned a purported investment by Alapli in a power project (the "Project") in Turkey, which was allegedly made in reliance upon governmental assurances and legislation intended to attract international investment. In 1995, two Turkish nationals established a company in Turkey as an investment vehicle (the "First Investment Vehicle"). After submitting a feasibility study for the Project in 1997, which was approved by the competent Turkish Ministry, the First Investment Vehicle concluded a Letter of Intent with a corporate group in the U.S. ("X"), which would be the engineering, procurement and construction contractor ("EPC") for the Project. The First Investment Vehicle also entered into a Joint Development Agreement ("JDA") with an affiliate of X that would provide funding for the development of the Project. In October 1998, the First Investment Vehicle and the competent Turkish Ministry concluded a concession contract concerning the Project (the "Concession") (introductory note pp. 1, 2, ¶ 2).
In April 1999, Alapli was incorporated as a subsidiary of a holding company, which was wholly owned by one of the aforementioned Turkish nationals. In March 2000, Alapli acquired shares in a new Turkish company (the "Second Investment Vehicle"), which was assigned the rights of the First Investment Vehicle under the Concession. This assignment was approved by respondent in November 2000 (introductory note p. 2).
Claimant's complains related to legislative changes in 2000, which allegedly contradicted respondent's assurances, led to the loss of its investment and violated investment protection provisions of the ECT and the BIT (introductory note p. 2, ¶ 2). Respondent's move for bifurcation of the proceedings was declined (¶ 19).
The tribunal summarized that in this dispute, a Turkish national backed by an American multinational, seeing a dispute looming with his own government, established a corporate entity in the Netherlands, Alapli, which was claiming treaty protection for the Project. Financial contribution and technological know-how came from Americans, whereas the Concession was awarded to a corporate entity in Turkey. In view of this and after careful consideration of all arguments and evidence, the tribunal's majority concluded that it had no jurisdiction to hear the dispute, albeit due to two lines of reasoning (¶¶ 311-312). After underscoring that jurisdiction was clearly absent, and before Arbitrator Park and Arbitrator Stern set out their reasoning, the tribunal clarified that an arbitrator shall not set jurisdictional barriers at unreasonable levels that deny investors' legitimate expectations. Equally, a tribunal shall not facilitate use of treaties by persons not intended to receive their benefits. Under the invoked instruments, Turkey had agreed to arbitrate with Dutch entities that had actually made investments in Turkey (¶¶ 333-336).
Arbitrator Park concluded that claimant simply lacked the status of an investor, for want of any contribution to the Project (¶ 315). All contributions came from someone other than claimant: negotiations were conducted by Turkish nationals; the Concession came from a Turkish company, the First Investment Vehicle; the technology was provided by an affiliate of the Americans. Especially capital came from Americans that funded all capital for the corporate interest characterized as "shares of stock" under the BIT and "shares, stock or other form of equity" under the ECT (¶¶ 338, 340). These were merely bank transfers and not loans. Furthermore, payments were made to First Investment Vehicle and not to Alapli (¶¶ 341-343). Arbitrator Park found that claimant neither made any contribution nor took any risk (¶ 347). Claimant's status as a national of another contracting state was not in itself enough to qualify a person as an investor. In fact, for a person to be an investor such person must actually make an investment in the sense of an active contribution (¶ 350). Arbitrator Park took the view that this concept of "active contribution" is clearly set both in the ECT and the BIT (¶ 352). In this light, the "flow" being considered must had run from the Netherlands to Turkey and not from the United States or some other country. Essentially, Arbitrator Park noted that investment treaties provide standards of treatment with relation to investments from designated nationals; they are not intended as treaties with the world (¶¶ 353, 361). Moreover, the phrase "investments of investors" in Art. 26(1) of the ECT and Art. 3(1) of the BIT demonstrated that an alleged investor must have made some contribution to the host state permitting characterization of that contribution as an investment "of" the investor (¶ 358). In the present case, Alapli had made no relevant contribution to the investment, which comprised of the Concession, the know-how and the statutory capital of the Second Investment Vehicle (¶ 363). Arbitrator Park further relied on Salini, Toto v. Lebanon and Mobil and others v. Venezuela and found that claimant acted merely as a conduit in effecting back-to-back payments required to incorporate the Second Investment Vehicle (¶¶ 382-386). Conclusively, Arbitrator Park expressed the view that the tribunal had no jurisdiction, as neither the ECT nor the BIT contemplated jurisdiction over a claim brought by an entity which played no meaningful role contributing to the relevant host state project, whether by way of money, concession rights or technology (¶ 389).
Arbitrator Stern reached the same conclusion, on the grounds of timing and bona fides, since claimant had not made an investment until after the root of controversy was evident and the dispute had become a high probability (¶ 315). In particular, Arbitrator Stern relied on the same factual elements as Arbitrator Park, those being a visible sign that the main purpose of the whole operation was to gain access to ICSID arbitration at a time, when there were already important disagreements that are at the core of the present claim of claimant. Thus, the introduction of the Dutch company in the investment chain was an abuse of the system of international investment protection under the ECT-BIT-ICSID mechanism (¶ 390). Citing Mobil and Phoenix, Arbitrator Stern explained that abuse depends on the timing of structuring of a national investment through a foreign corporation and on the specific circumstances, in which it happened (¶ 391). She accepted that there is a dividing line between good faith structuring to gain access to international arbitration and a bad faith restructuring to get same access. This line occurs, when the relevant party can see an actual dispute or can foresee a specific future dispute as a high probability and not merely a general future controversy. She took the view that it would be an abuse for an investor to manipulate the nationality of a shell company to gain jurisdiction under an international treaty at a time, when the investor is aware that events have occurred that negatively affect its investment and may lead to arbitration. In each case, the answer is found in the particular circumstances, she noted (¶¶ 402-403). Consequently, as the investment was not a bona fide investment, due to it having been performed at a time when the facts of the root of the dispute were already known and a dispute was already a high probability, Arbitrator Stern concluded that the tribunal had no jurisdiction over this investment (¶ 417).
To the contrary, Arbitrator Lalonde in his dissenting opinion was convinced that the tribunal did have jurisdiction ratione personae, ratione materiae and ratione temporis under both the BIT and the ECT, citing Alpha Projektholding v. Ukraine, MHS v. Malaysia, Bayindir, Toto, Saipem v. Bangladesh, Mobil, Phoenix and PSEG v Turkey.
This dispute concerned an alleged investment in a power project in Turkey in the form of concession contracts by a corporation established in the Netherlands. Claimant maintained that legislative changes led to the loss of its investment. The tribunal found that claimant had been established by a Turkish national backed by an American multinational at the time when a dispute was looming with the government of Turkey. The majority of the tribunal decided that it had no jurisdiction, albeit for two separate reasons. Arbitrator Park found that claimant lacked the status of an investor due to lack of contribution to the power project. Arbitrator Stern found that there was no bona fide investment. The introduction of claimant in the investment chain at the particular moment in time constituted an abuse of the system of international investment protection under the ECT-BIT-ICSID mechanism.
This summary comes from the following paper:
The paper is part of the joint OGEL/TDM/ArbitralWomen Special Issue:
TDM 7 (2018) - OGEL/TDM/ArbitralWomen - Strategic Considerations in Energy Disputes