Europe Cement v. Turkey (ICSID Case No. ARB(AF)/07/2)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on August 13, 2009.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT, arising out of an alleged breach of the standards of expropriation (Art. 13 of the ECT) and fair and equitable treatment (Art. 10(1) of the ECT) (¶ 26). The dispute was submitted to an ICSID Additional Facility arbitral tribunal according to Art. 26(4)(a)(ii) of the ECT.
Any third parties or parallel proceedings:
Parallel to this arbitration the ICSID proceedings of Libananco and Cementownia were taking place (see above under Nos 10 and 12 respectively), as well as the ad hoc arbitration under the UNCITRAL Arbitration Rules initiated by Polska Energetyka Holding S.A. and proceedings before the ECtHR (Uzan v. Turkey, Application No. 18240/03 of May 22, 2003). The cumulative amount of shares held by the claimants in the ICSID cases amounted to 130% and 125% of shareholding in the two Turkish utility companies. In 2014, one more claimant alleged ownership of same shares and initiated arbitration against Turkey (Uzan v. Turkey, SCC Case No. V 2014/023).
Claimant in this proceeding was Europe Cement Investment and Trade S.A., ("Europe Cement"), existing and organized under the laws of Poland with its registered seat in Krakow (¶¶ 1, 3). Respondent was the Republic of Turkey ("Turkey") (¶ 1).
The circumstances of this arbitration proceeding were quite similar, if not identical, to the ones of Libananco and Europe Cement (ICSID Case Nos. ARB/06/8 and ARB(AF)/07/2, respectively), including shareholding in ÇEAŞ and Kepez (¶¶ 2, 25, 84), the alleged expropriation (¶ 21), the surveillance by email and telephone interceptions (¶ 21) and the duties that the tribunal imposed on respondent in this regard (¶¶ 35, 36), the financial statements for the years 2003 and 2004 making no mention of the claimed assets (¶¶ 94, 98), the request for the production of the original share certificates (¶¶ 15, 19), arrangements for depository services with JPMorgan Chase Bank in London (¶¶ 45, 55, 56), claimant being requested to proceed with signing the custody agreement and with producing the original share certificates (¶ 21) and claimant repeatedly failing to comply with either of the requests (¶¶ 47, 99). However, in this arbitration, like in Libananco (final award ¶ 64), the tribunal was informed that Mr Kemal Uzan was a fugitive from justice hiding outside of Turkey and subject to an Interpol Red Notice (¶ 102).
As in Cementownia, the tribunal noted the unusual situation of both parties requesting the dismissal of the claim (¶ 81). Similarly, the reasons put forward by each party differed sharply. Claimant based its request on its inability to produce the share certificates (¶¶ 57, 91, 112), whereas respondent requested the tribunal to scrutinize all aspects of claimant's standing to sue and to issue an award dismissing the claim with prejudice along with an award of damages and costs in its favor (¶¶ 63, 65, 68). The tribunal examined the question, whether the assertions and arguments put forward by the parties constituted an agreement to discontinue (¶ 119). It noted that the agreement on the outcome could not be interpreted as agreement on discontinuance or absence of dispute between the parties, especially in view of the reliefs sought by respondent (¶ 120). Thus, it rejected claimant's submission and proceeded with considering the question of jurisdiction in the context of respondent's requests (¶ 122), those being: (a) dismissing claimant's claim in its entirety; (b) declaring that the claim is ill-founded and has been asserted using inauthentic documents; (c) awarding monetary compensation to the respondent; and (d) issuing cost award in favor of respondent (¶ 123).
The tribunal proceeded with considering its jurisdiction. It noted that solely on the basis of claimant admitting its inability to prove the jurisdictional basis required under Art. 26(1) of the ECT, it clearly did not have jurisdiction (¶¶ 142-143). Yet, even if claimant had not made such a concession, the evidence adduced allowed for the conclusion that Europe Cement had not owned the claimed shares in the Turkish utility companies at material time. That too would lead to lack of jurisdiction (¶ 144). However, respondent's requests required the tribunal to go further than this, as Turkey alleged an abuse of process by claimant and requested a declaration that there had been such an abuse. The tribunal, before examining whether the facts of the case constituted an abuse of process, expressed the opinion that declaratory relief is a common form of relief in international tribunals in state-to-state cases (¶¶ 146-149). Regarding the share transfer agreements, it agreed with respondent in that they raised some serious questions. Actually, it adopted the view that there was a strong inference that the documents were not produced either because claimant had not had them or because they would not withstand forensic scrutiny (¶ 152). The same applied on the modalities of the claimed transaction due to the secrecy of the identity of the "trusted employees" and the lack of paper trail and records, including bank records of deposits (¶ 154). The tribunal further noted the lack of approvals and notifications required under domestic law for the transfer to be valid (¶ 156), the lack of reference in the financial statements for the years 2003 and 2004 (¶ 157) along with the discrepancies in the submitted Memorial and the share transfer agreements and the parallel proceedings that led to a cumulative amount of shares of 130% of ÇEAŞ and 125% of Kepez (¶ 159). The tribunal found that the circumstances of this case gave rise to a strong inference that there had been no transfer of shares in ÇEAŞ and Kepez to claimant at claimed time. It also agreed with respondent that claimant not only failed to prove the share purchase but in fact never purchased the shares. It was clear to the tribunal that the claim to share ownership was based on inauthentic documents and the claim was fraudulent (¶¶ 163, 167). The tribunal was not convinced by claimant's suggestions regarding the inability to produce the original documents (¶ 165). It repeated that claimant bore the onus to prove ownership of the shares and noted that it utterly failed to discharge this (¶ 166). Thereafter, it addressed the question of whether the circumstances of this case constituted an abuse of process, an issue described by respondent as one of "international public interest". After considering the principle of good faith, as well as Inceysa and Phoenix (¶¶ 171-174), it stressed that in the present case there was no investment at all, in contrast to cited cases where the lack of good faith was present in the acquisition of the investment. However, despite accepting that a claim based on the false assertion of ownership of an investment could constitute an abuse of process (¶ 175), it decided not to make any additional declaration on this matter, in view of the established lack of jurisdiction (¶ 176). With reference to the requested monetary compensation, the tribunal affirmed that conduct involving fraud and an abuse of process deserved condemnation (¶ 180). Still, it decided that these actions did not warrant an award for damages in favor of respondent, as any potential reputational damage suffered by respondent would be remedied by the reasoning and conclusions of this award. These were considered to be a form of "satisfaction" for respondent (¶ 181).
This dispute concerned the same facts as the ones argued in Cementownia and Libananco. Both claimant and respondent had requested the claim to be dismissed. Still, this did not constitute an agreement between the parties due to the relief sought by respondent that of declaration of abuse of process by claimant. The tribunal found that claimant's claim to share ownership was based on inauthentic documents and that the claim was fraudulent. Further, the tribunal, having concluded that in this case there was no investment at all, it could not assess the lack of good faith in the acquisition of an investment. Due to the lack of jurisdiction, the tribunal refrained from making any additional declaration. Finally, it took the view that established fraud and abuse of process could not support respondent's claim for moral damages.
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