Investment Arbitration Law in Iran Turkcell v Iran
Investment arbitration, Turkcell, UNCITRAL, Amicable settlement
On October 16, 2014, the website of Noodles.com published the Turkcell company’s “Announcement regarding the Arbitration Case in relation to the GSM License Tender in Iran”:
Our Company had been awarded with the GSM license following the tender initiated to operate a GSM network in Islamic Republic of Iran. However, on the grounds that the license had been awarded to another company by Islamic Republic of Iran in an unlawful way, Turkcell have filed an ad hoc arbitration on January 11, 2008. Tribunal awarded that it has no jurisdiction to entertain Turkcell's claims. Our company is assessing possible legal options against the Tribunal's award.
The website of en.irna.ir shared with the public a different version of the same case on October 15, 2014:
The file was referred to an international panel, consisting of three lawyers, and the ruling was issued after six years of investigation. Accepting Iran’s defenses, the panel rejected Turkcell claim. The court mandated Turkcell to pay Iran the cost of arbitration, which is more than 1.5 million dollars.
To understand the legal repercussions of the above development, we need to look at the following matters:
1. Basic information about the case;
2. Basis of the Claim (BOC);
3. Amicable settlement of dispute;
4. Referral to court or arbitration tribunal;
5. Arbitration Rules of UNCITRAL;
6. Impossibility of referral to arbitration; and
7. Latest development.
I. Basic information about the case
Before entering into legal discussions, it would be useful to become familiar with the case by repeating the summarized information provided by the americanlawyers.com:
Ø Amount in controversy: $600 million;
Ø Dispute: Turkcell Iletisim Hizmetleri A.S. (Turkey) v. Islamic Republic of Iran;
Ø Claimant’s counsel: Yüksel Yüksel Karkin Küçük; DLA Piper UK;
Ø Respondent’s counsel: Eversheds; Centre of International Legal Affairs, Islamic Republic of Iran;
Ø Arbitral Institution and site: Permanent Court of Arbitration (Ad hoc/UNCITRAL)/The Hague;
Ø Arbitrators: Neil Kaplan; Mir Hossein Abedian Kalkhoran; Charles Brower.
II. Basis of the claim
As reported by Luke Eric Peterson in 2008:
Turkcell accuses Iran of violating the terms of a bilateral investment treaty between Turkey and Iran:
“This arbitration process relates to a dispute which arises by reason of acts by Islamic Republic of Iran, directly and indirectly, through entities owned and controlled by the Islamic Republic, further to the award of a license to operate a nationwide GSM network in the Islamic Republic on 18 February 2004 to a consortium that was led by our Company, as a result of which our Company has been materially deprived of its investment in that country and incurred significant losses.”
To understand the real basis of the claim, the next step is to analyze five paragraphs of Article 11 of the Agreement on Reciprocal Promotion and Protection of Investment between the Government of the Republic of Turkey and the Government of the Islamic Republic of Iran (“the Agreement”). These paragraphs cover (a) amicable settlement, (b) referral to court or arbitration tribunal, (c) arbitration rules of UNCITRAL, (d) impossibility of referral to arbitration, and (e) enforcement of arbitral awards.
III. Amicable settlement of dispute
Under Article 11(1) of the Agreement:
In the event of occurrence of a dispute between a Contracting Party in whose territory an investment is made and one or more investors of the other Contracting Party with respect to an investment, the Contracting Party in whose territory the investment is made and the investor(s) shall primarily endeavor to settle the dispute in an amicable manner through negotiation and consultation.
It is clear that before starting the arbitration process, Turkcell has gone through the process of “endeavoring to settle the dispute in an amicable manner through negotiation and consultation” but to no avail.
IV. Referral to court or arbitration tribunal
Article 11(2) of the Agreement states that:
In the event that the Contracting Party in whose territory an investment is made and the investor(s) are unable to agree within six months from the notification of the claim by one party to the other, the dispute upon the request of the investor, be referred to
(a) the competent courts of the Contracting Party in whose territory the investment is made, or with due regard of their own laws and regulations to:
(b) the ad hoc arbitral tribunal of three members established in the following manner:
The Party to the dispute that desires to refer the dispute to the arbitration shall appoint an arbitrator through a written notice sent to the other Party. The other party shall appoint an arbitrator within sixty days from the date of receipt of the said notice and the appointed arbitrators shall within the sixty days from the date of the last appointment, appoint the umpire. In the event that each of the parties fails to appoint its arbitrator within the mentioned period or that the appointed arbitrators fail to agree on the umpire, each of the parties may request the President of the International Arbitral Tribunal of the International Chamber of Commerce to appoint the failing party’s arbitrator or the umpire, as the case may be. In any event the umpire shall be appointed amongst nationals of a country having diplomatic relations with both Contracting Parties.
The parties to the Agreement opted for the ad hoc arbitral tribunal of three members. According to iareporter.com:
Since that time, an IAReporter investigation reveals that a tribunal has been constituted to hear the case. The panel consists of Judge Charles N. Brower (claimant’s nominee), Mr Hossein Abedian Kalkhoran (Iran’s nominee), and Mr. Neil Kaplan (chair).
The interesting event reported by the IAReporter was that at the beginning of the arbitration procedure, the government of Iran questioned the independence and impartiality of Judge Brower on account of his past service on the Iran-US Claims Tribunal. Further, the law firm of Judge Brower was involved in a particular legal matter involving Iranian parties. The challenge handed to the International Court of Arbitration of the ICC was ultimately dismissed.
V. Arbitration rules of UNCITRAL
Under Article 11(3) of the Agreement:
The arbitration shall be conducted according to the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).
The UNCITRAL Arbitration Rules include the following steps:
1. The award shall be made in writing and shall be final and binding on the parties. The parties undertake to carry out the award without delay (Article 32(2)).
2. The award may be made public only with the consent of both parties (Article 32(5)).
3. Except as provided in paragraph 2, the costs of arbitration shall in principle be borne by the unsuccessful party. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case (Article 40(1)).
VI. Impossibility of referral to arbitration
Article 11(4) of the Agreement adds that:
A dispute primarily referred to the competent courts of the Contracting Party in whose territory the investment is made, as long as it is pending, cannot be referred to arbitration save with the parties’ agreement; and in the event that a final judgment is rendered it cannot be referred to arbitration.
We know that in the above case, the matter was never referred to the competent courts of either Iran or Turkey but it is interesting to know that in case of such a referral, it would be impossible to refer the case to arbitration if a final judgment was rendered on the issue.
VII. Latest development
It is reported on the website of hurriyetdailynews.com on January 18, 2016 that:
Turkcell is looking for acquisition opportunities to expand regionally and Iran could be a target market as sanctions against Tehran are lifted, the chief executive of Turkey’s largest mobile operator said on Jan. 18.
“Iran is a huge market and in our focus,” Kaan Terzioğlu said in an interview with Reuters. “We are closely watching the Iranian market and in touch with all of its fixed line and mobile operators.”
GOOD TO KNOW
To learn more about the issues mentioned in this Legal Report, you may read the following texts. If after reading this Booklet and the following texts, you still have questions that call for detailed responses, you may send them to us by clicking on “Our Services” button and following the procedure explained there.
RELEVANT LEGAL NEWS:
Law in Iran Legal News: Foreign Investment in Post-Sanctions Era, Wednesday, August 12, 2015.
Law in Iran Legal Report No. 10: Investment in Special Touristic Zones of Iran, Wednesday, September 30, 2015.
1. Law in Iran Booklet No. 2: Foreign Investment Law of Iran, Wednesday, August 12, 2015.
2. Law in Iran Booklet No. 9: Methods of Carrying on Business in Iran, Thursday, September 24, 2015.
1. Farhad Emam, Foreign Investment Law of Iran, Yalda Publications, 1994 (in Persian).
2. Farhad Emam, Doing Business with Iran (Part 3 on “Establishing a Business in Iran”), Kogan Page, 2002.
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