Uzan v. Turkey (SCC Case No. V 2014/023)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on April 20, 2016. Claimant challenged the final award before the Svea Court that upheld it in its judgment of February 26, 2018.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT, arising out of an alleged breach of the standard of expropriation (Art. 13(1) of the ECT). The dispute was submitted to a SCC arbitral tribunal according to Art. 26(4)(c) of the ECT (¶ 11).
The tribunal in its award on Security for Costs and Bifurcation of July 20, 2015 granted respondent's request for bifurcation of its objection as to jurisdiction ratione personae (¶ 10).
Any third parties or parallel proceedings:
In 2006 and 2007 claimants alleging ownership of same assets initiated simultaneously three separate arbitration proceedings before ICSID, those being Libananco, Cementownia and Europe Cement (see above under Nos 10, 12 and 13 respectively) and an ad hoc arbitration, as well as proceedings before ECtHR (Uzan v. Turkey, Application No. 18240/03 of May 22, 2003). The cumulative amount of shares held by the claimants in said ICSID cases amounted to 130% and 125% of shareholding in the two Turkish utility companies.
Claimant in this arbitration was Cem Cengiz Uzan ("Mr Uzan"), a Turkish national residing in Paris, France, at the time of the arbitration, and respondent was the Republic of Turkey ("Turkey") (¶¶ 1, 3).
At the center of this dispute lay 50-year Concession Agreements granted by respondent to Çukurova Elektrik A.ª. ("ÇEAª") and Kepez Eletrik T.A.ª. ("Kepez"), entities that were also protagonists in Libananco, Europe Cement and Cementownia. Claimant argued that he owned shares in ÇEAª and Kepez, initially 35% and 40% respectively, whereas at the time of the proceedings, both directly and indirectly, 11.34% and 15.98 % respectively. It was alleged that ÇEAª and Kepez operated normally for a number of years but due to political rivalry between claimant's political party and the political party then in power in Turkey, respondent proceeded with seizing the assets and the rights of said companies through enacting discriminatory laws and carrying measures, including the cancellation of concession agreements, failure of a corrupt court system to properly remedy the illegal measures and instituting wide state actions against claimant and his family. Respondent asserted that the concession agreements were terminated for breach of law as ÇEAª and Kepez refused to comply with new legislation on energy transmission. It also added that claimant is a serial litigator, who brought numerous unsuccessful claims in both domestic courts and international tribunals, while having been convicted of a number of frauds and having received prison sentences related thereto (¶¶ 7-9).
The tribunal addressed respondent's objection of ratione personae (¶ 54), and in particular the suggestion that claimant did not qualify as an investor under the ECT (¶ 128). Claimant, a Turkish national, sought to invoke the status of "permanently residing in" of Art. 1(7)(a)(i) of the ECT in order to satisfy the criteria for being an investor and thus establish the tribunal's jurisdiction. The tribunal emphasized that consent is the basis of the agreement to arbitrate. Therefore, it stressed the necessity of claimant being an investor within the meaning of the ECT in order to be capable of accepting respondent's offer to arbitrate (¶¶ 133-135). After taking into consideration Art. 31(1) of the VCLT, the tribunal noted that a treaty's language must be examined equally taking regard to the entirety of the text read together, for context to be provided and having regard to what the objects and purposes were in enacting the treaty. An overly grammatical reading of the provisions is not what is called for (¶ 135). In addition, it affirmed that the ECT is lex specialis and thus there is no need to turn to customary international law for determining the meaning of "investor". While taking note of Armas v. Venezuela, it further confirmed that considering the ECT to be lex specialis is consistent with Art. 17 of the ILC Draft Articles on Diplomatic Protection (¶¶ 141-143). The tribunal then decided that a natural person may qualify as an "investor" according to Art. 1(7)(a)(i) of the ECT in the following three ways: (a) having the nationality of; (b) having the citizenship of; or (c) permanently residing in a Contracting State to the ECT in accordance with its applicable law (¶ 135). No order of priority exists (¶ 145). Yet, the tribunal decided that Art. 26(1) of the ECT is the most relevant for establishing jurisdiction. It interpreted this according to the aforementioned rules and found that the word "another" and the words "of the latter in the Area of the former" imply a condition of transnationalism. These provisions essentially require an international investor with some cross-border characteristic for protection under the ECT to be offered and become a "covered investor" (¶ 146). It then took into consideration the object and purpose of the ECT, which is to protect international investors (¶ 152). As claimant had strong links with Turkey both at the time the alleged investments were made (¶ 147) and at the time the asserted interference with his investment was performed, he lacked the essential transnational link. The tribunal underscored that the ECT was not intended to protect Turkish nationals within Turkey who make investments in their own country (¶ 152). It then proceeded with specifying that the requirement of permanent residence according to Art. 1(7)(a)(i) of the ECT entails two components; a factual and a legal one. While the latter is regulated by the domestic law of the Contracting Party (¶ 156), the tribunal accepted that it had authority to engage in an inquiry as to the first one (¶ 160). In doing so, it examined the evidence submitted by the parties and reached the conclusion that claimant maintained numerous and significant links with Turkey (¶ 163), including filing of tax returns, voting in elections, establishing a political party (¶ 164), and claimant's own submissions to English Courts that he was neither domiciled nor resident within the UK (¶¶ 167, 171). Hence, it concluded that claimant, despite the definition of his status by the UK authorities, was not permanently residing in the UK (¶ 165). Turning to claimant's permanent residence in France, the tribunal was satisfied that he was present in France since 2009 and had structured there his family, social, economic and professional life. However, due to the lack of the transnational element, as claimant was not an investor "of another Contracting Party" (¶¶ 185-187) the tribunal decided that claimant had not established jurisdiction ratione personae. Thus, the tribunal had no jurisdiction to hear claimant's ECT claims against Turkey (¶ 191).
In awarding arbitration costs, the tribunal took consideration of Arts. 43(5) and 44 of the SCC Rules and section 37 of the Swedish Arbitration Act and departed from the ordinary practice of ordering an award of costs for respondent (¶¶ 192-198). Rather it looked into the particular circumstances of the case, those being a novel issue of interpretation of the ECT and complex legal issues. Still it was not convinced that claimant was engaged in treaty shopping or had abused the process in bringing his claims before it. Thus, it considered fair for each party to bear its own costs and share the arbitration costs (¶¶ 202-203).
The factual background of this dispute is the one already discussed in Libananco, Europe Cement and Cementownia. In the present proceeding claimant, Mr Uzan, maintained that he owned 11.34% and 15.98% in ÇEAª and Kepez respectively. The tribunal in order to examine its jurisdiction ratione personae took consideration of Art. 1(7) of the ECT. Still, it decided that Art. 26(1) of the ECT was the most relevant for establishing its jurisdiction. It then found that the provisions "another" and "of the latter in the Area of the former" implied a condition of transnationalism. More specifically they required an international investor with some cross-border characteristic for protection under the ECT to be offered and qualifying said investor as a "covered investor". In the present case, the tribunal found that claimant maintained numerous and significant links with Turkey, including establishing a political party, at the time of making the alleged investment and at the time of respondent's alleged interference therewith. Moreover, claimant had submitted before English Courts that he was not permanently residing in the UK at the material time. Thus, the transnational element was not present. Consequently, the tribunal had no jurisdiction.
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