Europe Cement Investment & Trade S.A. v. Republic of Turkey
ICSID · Investment (ICSID and treaty) · Turkey · 13 Aug 2009
Why it matters
This case is a landmark for its clear application of the good faith principle in investment arbitration. The tribunal held that a claim based on false assertions of ownership and fraudulent documents constitutes an abuse of process, warranting dismissal for lack of jurisdiction. It also set a precedent for awarding full costs against a claimant that pursues a baseless claim, deterring similar abuses of the ICSID system.
Summary
Europe Cement Investment & Trade S.A., a Polish company, initiated ICSID arbitration against Turkey under the Energy Charter Treaty, claiming that Turkey unlawfully expropriated its shares in two Turkish electricity companies, CEAS and Kepez, and failed to provide fair and equitable treatment. The Claimant alleged it had purchased shares in May 2003 and sought over $3.8 billion in damages. Turkey challenged jurisdiction, arguing that the Claimant never owned the shares and had produced fraudulent documents, including backdated share certificates and purchase agreements. The Tribunal bifurcated proceedings and ordered the Claimant to produce original documents. Over several months, the Claimant repeatedly sought extensions and failed to produce originals, leading the Tribunal to infer that the documents were not authentic. At the jurisdiction hearing, the Claimant's counsel requested dismissal of the claim, which the Tribunal treated as a withdrawal. However, the Respondent pressed for a finding of lack of jurisdiction and an award of costs. The Tribunal analyzed the evidence, including expert testimony that the share certificates were likely backdated, and concluded that the Claimant had not proven ownership of the shares at the relevant time. Applying the principle of good faith, the Tribunal held that asserting jurisdiction based on fraudulent documents was an abuse of process, and therefore it lacked jurisdiction. The Tribunal dismissed the claim in its entirety and ordered the Claimant to pay Turkey's full legal costs of US$3,907,383.14 plus half the ICSID costs, totaling US$4,037,123.14. The Tribunal declined to award moral damages, finding that the costs award and the reasoning provided sufficient satisfaction.
The detail
Parties: Europe Cement Investment & Trade S.A. v. Republic of Turkey
Case number: ICSID Case No. ARB(AF)/07/2
Outcome: The Tribunal dismissed the claim in its entirety for lack of jurisdiction, finding that the Claimant did not own shares in CEAS and Kepez at the relevant time and had relied on fraudulent documents. The Claimant was ordered to pay the Respondent's full costs of US$3,907,383.14 plus US$129,740 for ICSID costs.
Quantum: US$4,037,123.14 (costs)
Applicable law: Energy Charter Treaty, ICSID Additional Facility Rules
Issues in play: The principle of good faith and the requirement of a genuine investment under the Energy Charter Treaty collided with the Claimant's assertion of ownership based on allegedly backdated and fraudulent documents.
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