Temporal arguments exclude majority of construction company's claims under Turkey/Jordan BIT

TA v Jordan concerned a claim relating to interference with an arbitration award by the Jordanian courts. A tribunal constituted under the ICSID Rules, decided that the majority of Turkish construction company, ATA's claims against Jordan related to disputes arising before the Turkey/Jordan Bilateral Investment Treaty (BIT) entered into force and were therefore inadmissible. In making its determination, the tribunal followed the restrictive reasoning in the Lucchetti v Peru decision.

However, the tribunal upheld ATA’s claim in respect of the extinguishment of the right to arbitration. This was held to be a breach of ATA's legitimate expectations and of Jordan’s fair and equitable treatment obligation and the relevant dispute was considered to arise only after the BIT came into force.

The claimant, ATA, was a Turkish construction company which built a dike on the Dead Sea for Arab Potash Company (APC), a Jordanian based entity which was, at that time, majority-controlled by the Jordanian state. The contract between ATA and APC was governed by Jordanian law (the Contract) and provided for disputes to be referred to ad hoc arbitration. A dispute arose when the dike collapsed. However, since the collapse occurred after construction, whilst APC were filling the dike with water, it was unclear who was liable for the incident and how much they were liable to pay.

Commercial arbitration

APC commenced arbitral proceedings under the Contract for more than US$50 million compensation. ATA in turn brought counterclaims for money owed under the contract. ATA argued that they were not strictly liable for construction as supervision had been APC's responsibility and the project had been under their control. The tribunal agreed with ATA in full and, in 2003, issued an award dismissing all of APC's claims and awarding ATA nearly US$6 million in damages.

Jordanian court proceedings

However, the Jordanian Court of Appeal held that the award should be set aside and annulled the arbitration agreement. Both decisions were endorsed subsequently by the Court of Cassation.

APC then commenced a further action against ATA in the Jordanian courts, again seeking damages for the dike's collapse as per its original monetary claims. It did offer to submit the action to a new commercial arbitration instead but ATA refused on the basis that it could not expect a fair process but rather a rigged arbitration.

ICSID arbitration

In 2008, ATA commenced ICSID proceedings against Jordan pursuant to the BIT, alleging that:

• Jordan had expropriated its investment by annulling its arbitral award and alleging that this automatically cancelled the arbitration agreement.
• The Jordanian courts had overstepped the grounds for reviewing an arbitral award under the Jordanian Arbitration Law. This claim fell within the right to fair and equitable treatment (FET) enshrined both in the BIT's preamble and in its Most Favoured National (MFN) clause (by importing an FET provision from treaties with third States).
• APC (and by extension, Jordan) breached ATA's legitimate expectations  that "the outcome of the arbitral process under the contract would be a final and binding award that would be free from illegitimate and unforeseeable interference by the domestic courts".

Jordan argued that the tribunal had no jurisdiction on the basis that:

• The dispute had arisen and been arbitrated and litigated for six years before the BIT entered into force (although the Court of Appeal's judgment of annulment and the Court of Cassation proceedings occurred afterwards).
• No new dispute arose when the award was annulled and the arbitration agreement extinguished.
• An interest in a damages award cannot constitute an "investment" for the purposes of the BIT. When the BIT entered into force, nothing remained of the original investment. Moreover, when the original investment was made, ATA had no expectation of BIT protection.

The tribunal concluded that the claims in connection with the annulment of the final award (both in relation to expropriation and denial of justice) were inadmissible for lack of jurisdiction "ratione temporis" (on the basis of time) because the wider dispute had already been submitted to the Jordanian Court of Appeal before the BIT entered into force. Although the claims "crystallised" when the Court of Cassation rendered its decision, following the reasoning in Lucchetti, that dispute was "legally equivalent to the contractual dispute which was initiated on 6 September 2000".

However, the tribunal also held that:

• An investment can be a "bundle of rights" and the original Contract together with the rights in the award can constitute an investment for the purpose of the BIT. 
• The extinguishment of the arbitration agreement did constitute a treaty breach, depriving ATA of a valuable asset. The claim was not barred, since the Turkish company's right to arbitrate "was never in contention until the annulment (in 2007) whereupon the Court of Cassation extinguished that right". At that point, a dispute arose over the continuing right to arbitrate in connection with the underlying investment.

The tribunal ordered that ATA was entitled to initiate new arbitral proceedings, and that the Jordanian court proceedings in relation to the dike be "immediately and unconditionally terminated”.

The ICSID tribunal ordered Jordan to terminate on-going court proceedings against ATA and the award gives ATA the right to restart its commercial arbitration against Arab Potash Company (APC). In effect, this prevents APC from pursuing its own claim against ATA. Since no damages were awarded and the award merely aimed to reinstate the situation prior to breach, the outcome was decidedly mixed and both sides have claimed victory.

The ICSID Tribunal's analysis of what constitutes a new dispute was rigorous and led to the exclusion of the majority of claims. Therefore, even where a dispute crystallised upon the Court of Cassation delivering its final award, such as in relation to the denial of justice claim, this was not seen to give rise to a distinct dispute. The only claim which was successful on this basis was the extinguishing of the right to arbitration which deprived the investor of a valuable asset and was considered not to be connected to an earlier dispute.

The lack of clarity which remains as to the distinction between these scenarios only highlights the complexity of the area of the temporal scope of investment arbitration and the need for parties to focus on these jurisdictional hurdles. Although both parties’ cases appear in many ways to have been weak on the merits, the jurisdictional hurdles prevented the tribunal from even assessing them.

For a full analysis, please click here for our article published by PLC.

ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan (ICSID Case No.ARB/08/2)