The Energy Charter Treaty (ECT) is a multilateral convention. Article 2 of the ECT describes its purpose as "establish[ing] a legal framework in order to promote long-term cooperation in the energy field … in accordance with the objectives and principles of the [European Energy Charter]".

Part III of the ECT contains provisions establishing substantive protection for investments in the territory of a contracting party. Those provisions include:

Article 26 provides for settlement of disputes between a contracting party to the ECT and an investor of another contracting party relating to an investment of the investor, where the investor alleges a breach of Part III of the ECT. One of the dispute resolution methods provided for is arbitration pursuant to the ICSID Arbitration (Additional Facility) Rules (Additional Facility Rules), where either the state party or the state of the investor's nationality is not a party to the ICSID Convention.

Article 52(1)(i) of the Additional Facility Rules requires the tribunal's award to contain the decision of the tribunal "on every question submitted to it".

The claimant, Cementownia, claimed that it had purchased shares in two Turkish electric utility companies, Çukurova Elecktrik AS (CEAS) and Kepez Elektrik Türk AS (Kepez), from Kemal Uzan in May 2003. On 12 June 2003, concession agreements held by CEAS and Kepez were terminated by Turkey. The claimant commenced arbitration proceedings against Turkey pursuant to the Additional Facility Rules, alleging breach of Articles 10(1) and 13 of Part III of the ECT.

During the course of the proceedings it became evident that the claimant could not substantiate its status as an investor for the purposes of the ECT. Both parties asked the tribunal to dismiss the claim on jurisdictional grounds. The bases for their requests were different, however. Turkey argued that the claim was manifestly ill-founded, and had been asserted using inauthentic documents, and should therefore be dismissed on the merits with prejudice, and that an order for costs should be made. The claimant accepted that it was unable to produce share certificates substantiating its status as investor, but proposed that the tribunal dismiss the case without prejudice.

The first issue that the tribunal addressed was the burden of proof. The tribunal noted that the claimant never disputed that it bore the burden of proof to demonstrate that it was, in fact, an "investor" within the meaning of the treaty. However, the claimant argued that its acknowledged inability to satisfy that burden meant that its claim should be dismissed, and that the tribunal need not rule on Turkey's other objections. The tribunal rejected this argument, holding that, pursuant to Article 52(1)(i) of the Additional Facility Rules, the tribunal "must consider all such arguments when it decides the basis on which it disposes of each claim or objection".

The tribunal next reviewed, in considerable detail, the history of its requests to the claimant for proof of ownership of the investment (in this case, original copies of stock transfer documents) and the claimant's continued failure to provide such documents. The tribunal summarised the evidence by stating that "when taken together, [the evidence] show[s] the utter implausibility of the transaction claimed to have occurred on May 30, 2003".

Ultimately, the tribunal concluded that the claimant and Kemal Uzan "invented post factum the transaction and transfer of shares in order to gain access to international jurisdiction to which neither the initial investor nor the putative successor was entitled" (para 158). The tribunal condemned the claimant for "conduct [that] is not even close to proper" and concluded that the "Claimant's conduct in bringing the instant claim fails to meet the requisite standard of good faith conduct. The claim is manifestly ill-founded" (paras 156-57).

Turkey sought an award for the costs of the arbitration as well as an additional monetary award for malicious infliction of reputational damage. The tribunal awarded full costs to Turkey, but declined to award damages for intangible losses. The tribunal concluded that while there was nothing in the ICSID Convention to preclude an award of "moral damages", there was no basis in the BIT between Poland and Turkey to do so (unlike the bilateral investment treaty between Yemen and Oman, under which the tribunal in Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/1) awarded moral damages). The tribunal also noted that moral damages likely would not be available for mere "abuse of process".

This is the second such award in Turkey's favour in the past two months arising out of unproven claims of investment in the electricity sector. In August, an ICSID tribunal in Europe Cement Investment & Trade SA v Republic of Turkey (ICSID Case No ARB(AF)/07/2) (ECT) dismissed a putative Polish investor's claims, finding that "the evidence points to the conclusion that the claim to ownership of the shares at a time that would establish jurisdiction was made fraudulently". (For further discussion, see Legal update, Fraudulent ECT claim against Turkey dismissed.)

The awards indicate that tribunals are reluctant to allow fraudulent claims to be withdrawn without prejudice, and will instead rule on the claimant's alleged standing to claim in arbitration.