In Sehil İnşaat v. Turkmenistan (ICSID Case No. ARB/12/6), the arbitral panel concluded that a much maligned provision in the Turkey-Turkmenistan Bilateral Investment Treaty does not require that Turkish investors first file their claims in Turkmen local courts.  This conclusion is directly contrary to an earlier one in Kılıç İnşaat v. Turkmenistan (ICSID Case No. ARB/10/1), where the same provision had been interpreted as requiring mandatory, first resort to those same courts.^[1] 

Although the Sehil decision is not binding on other tribunals—no decisions are in international investment arbitration—the decision will certainly be cited by claimants as being the more persuasive of the two.  They will claim, with good reason, that the Sehil decision was based upon a more complete record and analysis.  Turkish investors should be heartened by this decision, and not just those with investments in Turkmenistan; the exact provision in question is found in a number of other Turkish BITs, including BITs with Albania, Bosnia-Herzegovina, Croatia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Moldova, Mongolia, Pakistan, Portugal, Serbia, Ukraine and Uzbekistan.  

Discussion

The controversial provision at issue in Sehil and Kılıç^[2], Article VII(2) of the Turkey-Turkmenistan BIT, reads in the pertinent part as follows:

2. If [the dispute] cannot be settled in this way [i.e. by negotiation] within six months following the date of the written notification [of the desire to negotiate] … the dispute can be submitted, as the investor may choose, to:

(a) The International Center for Settlement of Investment Disputes […]

(b) An ad hoc court of arbitration […]

(c) The Court of Arbitration of the Paris International Chamber of Commerce

provided that, if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute, and a final award has not been rendered within one year.

After the well supported finding there were only two authentic versions of the Turkey-Turkmenistan BIT (i.e. English and Russian versions) the Sehil tribunal waded into the conflicting expert opinions of several—seven to be exact—linguists regarding the meaning of Article VII(2).^[3] Interestingly, the panel stopped well short of fully resolving this battle of linguists. 

Thus, regarding the English version of Article VII(2), the tribunal relied on the fact the parties agreed the provision was ambiguous regarding whether initial resort to local courts was mandatory, an ambiguity the linguists “have not been able to solve.”  Sehil, Para. 212.  As for the Russian version the panel found the same ambiguity (Sehil, Para. 219), an ambiguity that “linguistic analysis alone cannot resolve” (Sehil, Para. 216).  Crucially on this point, and in a clear departure from the findings in Kılıç, the Sehil tribunal found, based on an abundance of evidence—some of which was not presented in Kılıç, that the Russian version was a translation from English.  Sehil, Para. 220-26.  “[B]ecause the Russian text is a translation of the English text, which both Parties agree is ambiguous, it is not surprising that the ambiguity found in the original text is reflected in the Russian translation.”  Sehil, Para. 227.

The panel then—and, as mentioned, without resolving the conflicting opinions of the linguists— resolved the ambiguity by considering the “context” of Article VII(2) along with the BIT’s “object and purpose.”^[4]  Regarding the “context,” the Sehil tribunal began its discussion by noting the “pathology” of requiring an investor to postpone legal action during a settlement negotiation period followed by the requirement that the investor then initiate a local court action and wait one-year before seeking international arbitration.  It concluded the “better, much more plausible interpretation … is that only investors who choose to go to local courts first will have to wait for a year prior to initiating international arbitration proceedings.”  Sehil, Para. 239. 

Turning then to the “object and purpose,” the panel — after it considered language found in the BIT’s preamble — observed that “the expressed intent of the BIT … is to establish an approach or conditions that are ‘fair and equitable’, and provide a ‘stable framework’ for the investor from the other country”.  Based upon this the Sehil tribunal concluded that to “require a party to first go to the local courts with the expense and delay that will ensue would be neither ‘fair and equitable’ nor provide a clear and ‘stable framework.’”  Sehil, Para. 243.

As a result, the panel in Sehil concluded “that read in its context and in light of the object and purpose of the Treaty, Article VII(2)’s proviso is to be interpreted as offering an option to go either to international arbitration or the local courts, in both its English and Russian authentic versions.”  Sehil, Para. 247.

Not surprisingly, given the well-mannered world of international arbitration, the Sehil panel refrained from criticizing the Kılıç panel, which as mentioned had come to the opposite conclusion about the meaning of Article VII(2).^[5]  But it noted, among other things, that a crucial witness in Sehil had not testified in Kılıç and that the Kılıç panel had proceeded on the assumption the English version of the BIT had been translated from the Russian version (Sehil, Para. 274), an assumption that can now be shown not to have been well-founded.  It would seem, absence the development of significant new evidence undermining the evidence presented to the Sehil panel, which seems unlikely, Kılıç has lost much of its persuasive value.  Indeed, this writer expects the evidence supporting the Sehil panel’s interpretation will only grow stronger.^[6]

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