ABSTRACT
In our study, the main differences between international investment arbitration and international commercial arbitration, and the ways to resolve the issue of competing jurisdictions arising when there are multiple competent judicial authorities in investment arbitration, have been evaluated in light of opinions in doctrine and decisions of the Court of Cassation.
I. INTRODUCTION
Although international investment arbitration and commercial arbitration emerge as methods for resolving disputes arising from commercial activities, they contain significant differences in terms of their characteristic features. In this regard, the main differences in terms of the relevant arbitration methods arise in terms of the parties to the dispute, the applicable law to the essence of the dispute, and the dispute resolution authorities.
Accordingly, our article will look at the opinions regarding the most suitable method to resolve the authority conflict between the dispute resolution authorities that have been specifically designated by the parties to the dispute and the jurisdictional bodies that have been determined in bilateral agreements concluded between states within the scope of investment arbitration.
II. DIFFERENCES BETWEEN INVESTMENT ARBITRATION AND COMMERCIAL ARBITRATION
The use of arbitration mechanisms in the resolution of disputes arising from international economic relations has developed in parallel with the needs of the globalized world, especially in the aftermath of the Second World War. In line with the activities of international cooperation organizations, states and traders establish complex economic relationships with each other and take steps in line with liberal economics. Indeed, as of today, the concepts of “foreign investor” and “foreign investment” are of critical importance for every national economy.
To protect investments made on foreign soil, both international investors and the jurisdictions where they operate have had to build international investment arbitration processes over time. Indeed, as a state holds the supreme power within its sovereign territory1, it may take actions that may compromise the assets of investors unjustly, and due to the principle of sovereign immunity, as a manifestation of the immunity of states, it may not face any sanctions from the jurisdiction of foreign states.
In light of this information, one of the mechanisms employed to protect foreign investors against states is international investment arbitration. International investment arbitration refers to the method used to resolve disputes between a foreign investor and the host state where the investment is made. The primary objective of international investmentarbitration is to resolve the dispute between the foreign investor and the host state in a depoliticized manner, thereby eliminating the possibility of biased resolution under the law of the host state, while also respecting the sovereignty rights of states and ensuring the protection of individuals against states2. To achieve this goal, states mutually recognize various commitments through bilateral agreements concerning the protection of foreign investments, such as mutual transfer of capital, refraining from expropriation without fair and effective compensation, and ensuring equal treatment3. Additionally, although international investment arbitration may primarily concern commercial relationships and could be argued to have a private law connection, it can be said to have a mixed nature due to its inherent inclusion of characteristic forms of public law in the adjudicatory process4.
On the other hand, in international commercial arbitration, the parties involved in the commercial relationship are private legal entities, traders, or public legal entities acting as traders. This arbitration mechanism focuses on resolving disputes arising from commercial relationships established between the parties, within the limits that the parties can freely dispose of, in accordance with their will5. Indeed, international commercial arbitration emphasizes the primacy of party autonomy, unlike the limited scope of state law, allowing parties to determine many aspects of the arbitration process, including substance and content, through their free will.
In this context, the characteristic differences between international investment arbitration and international commercial arbitration will be examined in our study.
A. Differences Arising From The Applicable Law
One of the most significant differences between international commercial arbitration and investment arbitration is the determination of the applicable law during the resolution of disputes. In disputes arising under international commercial arbitration, the applicable law is generally determined based on the agreement freely entered into by the parties. However, due to the inherent nature of investment arbitration’s close relationship with state law, the applicable law in disputes falling within the scope of international investment arbitration is generally determined based on international agreements related to the encouragement and protection of investments between states. Therefore, it cannot be denied that, by its very nature, investment arbitration is closely linked to international public law and state law6.
Furthermore, another reason why the application of state law is essential in investment arbitration is the necessity to prevent states from unlawfully using their sovereign rights within their territory against investors engaging in economic activities. At this point, if states claim to be the supreme authority within the investment area and have immunity in the face of adjudication, the application of the internal law of the state in the resolution of disputes would preclude any result. Hence, the application of state law in investment arbitration goes beyond mere procedural requirements as it involves a legal dimension that surpasses the sovereignty powers of states7.
In the context of international commercial arbitration proceedings, the aforementioned issues will not arise. This is because disputes arising from commercial relationships stem not from the abuse of sovereign authority by contracting states but from commercial reasons. Additionally, concerning disputes in international commercial arbitration cases, the law applicable to the essence of the dispute will already be determined based on the parties’ freedom of will. If the applicable law has not been determined, the law to be applied in resolving the dispute can be determined based on the essence of the commercial relationship and/ or contract, taking into account the international private law regulations in the parties’ national laws.
B. Differences In Terms Of Dispute Resolution Authorities
One of the differences that arise in the resolution of disputes under international commercial arbitration and investment arbitration is the authorities responsible for resolving the relevant disputes. Since disputes arising from both commercial arbitration and investment arbitration involve international characteristics, the existence of multiple competent dispute resolution authorities may arise.
In the case of disputes arising from international commercial arbitration, the competent dispute resolution authority is generally determined freely by the parties, hence it can vary. Sometimes, these may be local arbitration centers located within the boundaries of the country where the commercial relationships are conducted, and sometimes they may be international dispute resolution bodies such as the ICC. Additionally, authorities designated under the laws of the states related to the dispute, as authorized under international procedural law regulations, may also be competent to resolve the dispute. For example, under Article 47 of the Turkish Private International Law and International Civil Procedure Code no. 5718 (“PIL CODE”), if the jurisdiction agreement agreed upon by the parties is not concluded in writing, the jurisdiction agreement will be invalid, and the dispute resolution authority designated by the parties may become incompetent. Therefore, any gaps that arise can be addressed within the framework of the provisions of international procedural law under the PIL CODE.
International investment arbitration, by its structure, progresses primarily within the framework of state law, as one of the parties to the dispute will always be a state. In this context, the International Centre for Settlement of Investment Disputes (“ICSID”) often serves as the dispute resolution authority for the majority of international investment arbitration cases. Although disputes related to investment arbitration under the UNCITRAL rules or administered by the Stockholm Chamber of Commerce or ICC exist, there is a dominance of ICSID in the field of investment arbitration. Indeed, as of 2023, 329 investment arbitration cases have been heard at ICSID, with 68 of them concluded. Additionally, 45 new cases were filed at ICSID within the same year8. Under the ICSID Convention, decisions rendered by ICSID are subject to annulment only under the limited circumstances specified in Article 52 of the Convention, and there is no need for recognition and enforcement of decisions rendered by ICSID. This is because the contracting states have consented to these matters by becoming parties to the ICSID Convention.
In contrast, decisions rendered by dispute resolution bodies in the context of international commercial arbitration disputes become enforceable only after recognition and enforcement procedures are completed in the country where the decision will be applied. Otherwise, decisions rendered by arbitration centers may remain ineffective.
III. THE ISSUE OF COMPETING JURISDICTIONS IN INTERNATIONAL ARBITRATION
In legal terms, jurisdiction refers to the determination of the court that is competent to hear a case. One of the issues that may arise during the execution of international arbitration proceedings is the presence of multiple competent judicial authorities over the same dispute. Indeed, some bilateral investment treaties may have a broad dispute resolution mechanism, and if investment contracts also contain a provision regarding exclusive jurisdiction, the conflict between the dispute resolution place in the investment agreement and the jurisdiction place in the investment contract needs to be resolved9. Often, in investment agreements, jurisdiction-related provisions are drafted broadly, using phrases like “any”, creating a broad consent without limiting the jurisdiction aspect. When breaches of contracts and agreements arise, if these breaches overlap, the decision of the arbitral tribunal under the investment agreement can be considered as a resolution for disputes arising from the contract10. However, this situation can sometimes create problems in terms of the sovereign authority of states. For example, in the context of international investment arbitration, if a competent authority for dispute resolution is already determined under bilateral agreements signed at the interstate level for the protection of investments, but multiple competent authorities arise due to the conclusion of a separate jurisdiction agreement among the parties to the contract, the issue of competing jurisdictions may arise. Additionally, it is possible to resort to local courts under state jurisdiction before resorting to arbitration proceedings, activating the dispute resolution mechanism. In this context, the jurisdiction of local courts becomes a problem.
In terms of Turkish law, the competent court is regulated within the framework of the provisions set forth in the Turkish Code of Civil Procedure No. 610011 (“CCP”), except for exceptional provisions regarding jurisdiction in other laws. In this regard, a jurisdiction agreement refers to the written determination by traders or legal entities who are parties to a contract, regarding the resolution of disputes that may arise within the scope of their relationship concerning a subject over which they can freely dispose of, in accordance with Article 17 of the CCP. Unless otherwise agreed by the parties, the lawsuit can only be filed in the court recognized as competent under the relevant jurisdiction agreement. In this respect, in terms of procedural law, the jurisdiction agreement will establish an exclusive jurisdiction regime12. The validity of such jurisdiction agreements and the jurisdiction regarding applications to Turkish courts will be evaluated from the perspective of Turkish law, which is the law of the judge.
In this context, the Turkish Private International Law and International Civil Procedure Code no. 571813 will also be applicable if the dispute involves a foreign element. Article 47, titled “Agreement on Jurisdiction and its Limits” of the PIL CODE states in its first paragraph: “In cases where the jurisdiction is not determined based on the exclusive jurisdiction principle, the parties may agree that a dispute arising from a debt relationship with a foreign element will be heard by a court of a foreign state.” Additionally, Article 18/2 of the CCP stipulates: “For the jurisdiction agreement to be valid, it must be made in writing, the legal relationship giving rise to the dispute must be specific or determinable, and the court or courts designated as competent must be indicated.” Therefore, with regard to Article 47 of the PIL CODE and Article 18/2 of the CCP, the determination of the competent court is crucial for disputes involving foreign elements.
Whether a jurisdiction agreement that generally designates the courts of a foreign state as competent without specifying a specific jurisdiction area (such as Iranian courts) fulfills the requirement of being “specific” within the framework of the CCP is subject to doctrinal debate. Furthermore, there are contradictory decisions of the Court of Cassation on this matter:
The prevailing view in doctrine tends to consider jurisdiction agreements that generally designate the courts of a foreign state as competent to be valid. In this regard, Prof. Dr. Ziya Akıncı, in his book “International Construction Contracts” on page 372, addressed this issue by stating: “In international practice, the main focus of the parties is to reach an agreement on which state’s courts will hear the dispute. Therefore, considering agreements of the parties stating that the dispute will be resolved in a specific state court as completely invalid just because they do not specify the name of the city would not be in line with the expectations of the practice”14. Indeed, in its decision numbered 2014/16212 E. and 2015/1885 K., the 11th Civil Chamber of the Court of Cassation accepted the validity of the jurisdiction clause generally designating the English courts as competent, based on the allegation made by the plaintiff that “... the back of the bill of lading stipulates the jurisdiction clause regarding the resolution of disputes arising from transportation, and accordingly, it is determined that the English courts are competent for any dispute and English law will be applied.”
On the other hand, the doctrinal side that does not agree with the above view argues that a jurisdiction agreement generally designating the courts of a country as competent will not have practical consequences and will not be valid unless a specific court within that country is designated as competent15. Indeed, in its decision numbered 2015/7244 E. and 2016/1657 K., the 11th Civil Chamber of the Court of Cassation ruled that in the context of the absence of a specifically designated competent court, “For the selected court to be considered specific, the designated court must be expressly named. Therefore, without considering the matters announced by the court, determining a jurisdiction clause that does not meet the criterion of “specificity” by stating “the court to which the case is referred... Courts are competent” and establishing a written judgment accordingly was not correct and required reversal.” Additionally, in a dispute where Iranian courts were generally designated as competent, the 19th Civil Chamber of the Court of Cassation ruled in its decision numbered 1995/1770 E. and 1995/9992 K. that “...due to the lack of explicit designation of the competent Iranian Court in the jurisdiction agreement, and according to Article 31 of the Turkish Private International Law and International Civil Procedure Code numbered 2675, the existence of a valid jurisdiction agreement cannot be claimed. Therefore, the competent court should be determined according to the jurisdiction rules in the Law of Civil Procedure.”
On the other hand, although the parties may authorize foreign courts under Article 47 of the PIL CODE in disputes not falling within the exclusive jurisdiction of Turkish courts and arising from contractual relationships, there are different views in the doctrine and judicial decisions regarding whether the relevant jurisdiction clauses nullify the jurisdiction of Turkish courts.
In this context, the minority view is that even if the parties have established a valid jurisdiction agreement, they can still file a lawsuit in Turkish courts because the parties, with the relevant jurisdiction clauses, have only established a competent court in addition to Turkish courts. Indeed, in the decision of the Court of Cassation General Assembly of Civil Chambers, numbered E. 1988/11- 246 K. 1988/476, it was stated that “... a jurisdiction agreement made as envisaged by the law does not eliminate the jurisdiction of Turkish Courts. In other words, a jurisdiction agreement made under Article 31 cannot be considered as an exclusive jurisdiction agreement within the system introduced by the law. Accepting that the jurisdiction of the competent Turkish Court can be eliminated with ajurisdiction agreement made under Article 31 of Law No. 2675, as stated in the explanations regarding Article 22 of the Code of Civil Procedure, would lead to distrust of Turkish Courts, which would directly contradict public order.”
However, the prevailing view argues that under the jurisdiction agreement, the courts empowered by the parties, in accordance with Article 47 of the PIL CODE, can only hear the relevant cases if the respective courts themselves declare themselves incompetent, in which case Turkish courts may hear the cases. Therefore, the predominant position contends that with the establishment of a valid jurisdiction agreement between the parties, the jurisdiction of Turkish courts is suspend ed. Indeed, the Court of Cassation has also been issuing decisions in line with this view in recent times. For example, in the decision numbered E. 1998/12-287 K. 1998/325, the Court stated, “...if a valid jurisdiction agree ment exists, the Foreign State Court whose ju risdiction is agreed upon gains the exclusive authority... Therefore, if one of the parties fails to comply with the jurisdiction clause in the contract and files a lawsuit in a court in Turkey where jurisdiction is mandatory by law, the other party has the right to object to the lack of jurisdiction; and when the conditions are met, to raise objections of “pendency”.”
In this regard, if the jurisdiction agreements concluded between the parties specifically regulate which local courts will be compe tent, then the contract that empowers foreign courts under the said agreements will also be valid under Turkish law. However, during the resolution of the relevant disputes, if the minority opinion formed in doctrine and Court of Cassation decisions is accepted as the basis, then it is argued that the relevant jurisdiction agreements cannot override the jurisdiction of Turkish courts. Therefore, it is asserted that the cases covered by the afore mentioned agreements between the parties can also be filed before Turkish courts.
On the other hand, if the contract between the parties does not specifically stipulate which local courts will resolve the dispute, thereis a possibility that the relevant jurisdiction clauses may become invalid under Turkish law. In this case, according to Article 40 of the PIL CODE, which states that “Turkish courts’international jurisdiction is determined by the domestic rules of jurisdiction,” the existence of a competent court in Turkey according to the domestic rules of jurisdiction governing private law-based disputes or relationships would also indicate the existence of jurisdic tion for Turkish courts in international mat ters. Indeed, if there is no competent court in Turkey, Turkish courts cannot claim jurisdic tion over the case. Therefore, the competent court for the resolution of the dispute will be determined according to the general provi sions of Turkish law.
In light of all this information, it can be said that the issue of whether the jurisdiction clause between the parties is valid and whether Turkish courts’ jurisdiction is sus pended in the event of the validity of the relevant jurisdiction clause is subject to de bate in doctrine and case law. Additionally, in cases where a contracting state designated as the dispute resolution forum under inter national agreements for the protection of in vestments is replaced by a different country, difficulties may arise in the recognition and enforcement process of the decision taken or to be taken in the relevant case. On the other hand, it should be noted that in cases where the invalidity of the jurisdiction clauses or records between the contracting parties is acknowledged, if the jurisdiction objection is not raised by the opposing party as the first means of objection, the jurisdiction of Turkish courts will become definitive, and this situation will be considered as a new jurisdiction agreement between the parties before the court.
IV. CONCLUSION
The fundamental difference between inter national investment arbitration and commer cial arbitration lies in the fact that in invest ment arbitration, one of the parties involved in the dispute is always a state. In this context, the state party to the dispute does not act as a legal entity like a private law person, but rather as the supreme authority over the ter ritory where the investment is made. There fore, in investment arbitrations, the realm of public law predominates, allowing for sanc tions against the unlawful actions of states without infringing on their sovereignty.
On the other hand, in international commercial arbitration, the majority of parties are usually private law entities, and even if a public legal entity is involved, they act as a private law person. As a result, the law applicable to the substance of the dispute can be determined by the parties’ free will. In this regard, even in the absence of any agreement between the parties, the most relevant law governing the dispute can be determined based on the international procedural law provisions in the parties’ national laws.
Another significant difference between investment arbitration and commercial arbitration is the choice of dispute resolution forum. Indeed, disputes related to investment arbitration are generally resolved through the ICSID, whereas disputes concerning commercial arbitration are resolved either through arbitration centers agreed upon by the parties or through ad hoc arbitration according to the parties’ free will.
Finally, regarding the resolution of disputes arising from conflicts between the competent authorities designated under investment incentive and protection agreements, and those designated under the jurisdiction clauses concluded between the parties, the prevailing view in doctrine and judicial decisions asserts that in the presence of a valid jurisdiction clause, disputes should be brought exclusively before the designated competent authorities. The minority view, however, contends that jurisdictional agreements signed between parties do not waive the jurisdiction of states under their sovereign authority. Therefore, it suggests that cases can be brought before both local courts and the agreed-upon courts of the parties.
BIBLIOGRAPHY
ABDURRAHMAN EREN, Anayasa Hukuku Dersleri, 5. bası, Ankara 2023.
ALİ OSMAN KARAOĞLU, Yabancı Yatırımların Korunmasında Uluslararası Hukukun Rolü, 1. Bası, İstanbul 2019.
CEMAL ŞANLI/ EMRE ESEN/ İNCİ ATAMAN FİGANMEŞE , Milletlerarası Özel Hukuk, 10. bası, İstanbul 2023.
İNCİ ATAMAN FİGANMEŞE , “Milletlerarası Ticari Tahkim ile Yatırım Tahkimi Arasındaki Farklar”, Milletlerarası Hukuk ve Milletlerarası Özel Hukuk Bülteni, C. 31, S. 1, 2012.
MURAT ATALI/ İBRAHİM ERMENEK, Medeni Usul Hukuku, 5. Bası, Ankara.
NURAY EKŞİ, “Uluslararası Ticarete İlişkin İki Güncel Sorun: Sözleşme Bedelinin Yabancı Para Olarak Ödenmesi ve Yabancı Mahkemenin Yetkisinin Tesisi”, İstanbul Barosu Dergisi, C. 72, S. 10-12, 1998.
SEDAT ÇAL , “Uluslararası Yatırım Tahkimine İlişkin Kimi Eleştirilerin Değerlendirilmesi”, Ankara Üniversitesi Hukuk Fakültesi Dergisi, 57. Cilt, 4. Sayı, 2008.
SİNAN CAN KONYALI, “Milletlerarası Ticari Tahkim Kamu Düzeni”, Yüksek Lisans Tezi, Uludağ Üniversitesi Sosyal Bilimler Enstitüsü Özel Hukuk Anabilim Dalı Milletlerarası Özel Hukuk Bilim Dalı, Bursa 2017. SEDAT ÇAL , Uluslararası Yatırım Tahkimi ve Kamu Hukuku İlişkisi, 1. Bası, Ankara 2009.
SEMA TAŞVEREN, “Uluslararası Doğal Gaz Sözleşmelerinden Kaynaklanan Uyuşmazlıkların Tahkim Yolu ile Çözümünde Esasa Uygulanacak Hukuk”, Doktora Tezi, İhsan Doğramacı Bilkent Üniversitesi Ekonomi ve Sosyal Bilimler Enstitüsü, Ankara 2020.
ZİYA AKINCI, Milletlerarası İnşaat Sözleşmeleri, 1. Baskı, İstanbul. https://icsid.worldbank.org/newsandevents/newsreleases/icsidpublishes2023annualreport#:~:text=Highlights%20include%3A,under%20the%20amended%20ICSID%20rules (Erişim Tarihi: 12.01.2024).
FOOTNOTE
1 Abdurrahman Eren, Anayasa Hukuku Dersleri, 5. bası, Ankara 2023, p. 292.
2 Ali Osman Karaoğlu, Yabancı Yatırımların Korunmasında Uluslararası Hukukun Rolü, 1. Bası, İstanbul 2019, p. 59.
3 Cemal Şanlı/ Emre Esen/ İnci Ataman Figanmeşe, Milletlerarası Özel Hukuk, 10. bası, İstanbul 2023, p. 872.
4 Sedat Çal, “Uluslararası Yatırım Tahkimine İlişkin Kimi Eleştirilerin Değerlendirilmesi”, Ankara Üniversitesi Hukuk Fakültesi Dergisi, 57. Cilt, 4. Sayı, 2008, p. 167.
5 Sinan Can Konyalı, “Milletlerarası Ticari Tahkim Kamu Düzeni”, Yüksek Lisans Tezi, Uludağ Üniversitesi Sosyal Bilimler Enstitüsü Özel Hukuk Anabilim Dalı Milletlerarası Özel Hukuk Bilim Dalı, Bursa 2017, p. VI.
6 Çal, Uluslararası Yatırım Tahkimi ve Kamu Hukuku İlişkisi, 1. Bası, Ankara 2009, p. 254.
7 Ataman Figanmeşe, “Milletlerarası Ticari Tahkim ile Yatırım Tahkimi Arasındaki Farklar”, Milletlerarası Hukuk ve Milletlerarası Özel Hukuk Bülteni, Cilt: 31, Sayı: 1, 2012, p. 103.
8 https://icsid.worldbank.org/newsand-events/news-releases/icsid-publishes-2023-annual-report#:~:text= Highlights%20include%3A, under%20 the%20amended%20ICSID%20rules (Erişim Tarihi: 12.01.2024).
9 Sema Taşveren, “Uluslararası Doğal Gaz Sözleşmelerinden Kaynaklanan Uyuşmazlıkların Tahkim Yolu ile Çözümünde Esasa Uygulanacak Hukuk”, Doktora Tezi, İhsan Doğramacı Bilkent Üniversitesi Ekonomi ve Sosyal Bilimler Enstitüsü, Ankara 2020, p. 145.
10 Taşveren, p. 145.
11 04.02.2011 tarihli ve 27836 sayılı Resmî Gazete’de yayımlanan 6100 sayılı Hukuk Muhakemeleri Kanunu.
12 Murat Atalı/ İbrahim Ermenek, Medeni Usul Hukuku, 5. Bası, Ankara, p. 432.
13 12.12.2007 tarihli ve 26728 sayılı Resmî Gazete’de yayımlanan 5718 sayılı Milletlerarası Özel Hukuk ve Usul Hukuku Hakkında Kanun.
14 Ziya Akıncı, Milletlerarası İnşaat Sözleşmeleri, 1. Baskı, İstanbul, p. 372.
15 Nuray Ekşi, “Uluslararası Ticarete İlişkin İki Güncel Sorun: Sözleşme Bedelinin Yabancı Para Olarak Ödenmesi ve Yabancı Mahkemenin Yetkisinin Tesisi”, İstanbul Barosu Dergisi, Cilt 72, Sayı: 10- 12, 1998, p. 873.
