Interpreting inconsistences between two authentic language texts of a bilateral investment treaty and determining whether a provision to submit disputes to national courts before arbitration is mandatory

In Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v. Turkmenistan (ICSID Case No. ARB/10/1) an ICSID Tribunal (Mr J. William Rowley (President), Professor Philippe Sands QC and Professor William W. Park) considered an inconsistency between the English and Russian authentic texts of the Turkey-Turkmenistan bilateral investment treaty (BIT) in relation to whether an investor must submit its dispute to national courts prior to arbitration.  By applying the Vienna Convention on the Law of Treaties (VCLT) to the relevant issues, the tribunal determined that the BIT required submission of the dispute in question to the national courts of Turkmenistan before the initiation of arbitration proceedings.   However, the tribunal also specifically noted that it is yet to decide on the effect of non-compliance with this condition.

Kilic, a Turkish investor, brought a claim against Turkmenistan under the Turkey-Turkmenistan BIT.  However, before the claim could proceed to the merits phase, or even the jurisdictional phase, a dispute arose in relation to the interpretation of the dispute resolution provisions in Article VII.2 of the BIT.  In particular, there were differences between Article VII.2 in the authentic English and Russian texts which the states signed (they did not sign authentic Turkish or Turkmen texts).   The English text provided that an investor could submit its dispute to arbitration "provided that, if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year".  In contrast, the Russian text provided that an investor could submit its dispute to arbitration "on the condition that the concerned investor submitted the conflict to the court of the Party, that is a party to the conflict, and a final award of compensation of damages has not been rendered within one year" (emphasis added).      

The tribunal determined that the ordinary meaning of the words in the Russian text in their context and in light of the object and purpose of the treaty required the submission of the dispute to local courts prior to the initiation of arbitration proceedings.   However, the tribunal also determined that the English text could be interpreted in two ways, namely: (i) the word "if" in the phrase "if the investor concerned …" denotes that the investor has an option to commence claims in the local courts – it is not, therefore, a mandatory obligation; or (ii) the insertion of the word "if" was a grammatical mistake and therefore the English version should have the same meaning as the Russian version.

The Tribunal concluded that attempting to interpret the relevant English text in accordance with Article 31 of the VCLT left its meaning ambiguous and obscure.  The tribunal therefore considered supplementary means of interpretation as permitted under Article 32 of the VCLT.  In this regard, the tribunal noted that: (i) around the time Turkey entered into the Turkey-Turkmenistan BIT, it entered into a number of other treaties which each included authentic English versions and each required mandatory recourse to the local courts; and (ii) the Turkish version of the Turkey-Turkmenistan BIT that was published in Turkey's Official Gazette included the clear mandatory requirement.  These circumstances surrounding the conclusion of the Turkey-Turkmenistan BIT led the tribunal to conclude that the better view was that the English language version of Article VII.2 should be interpreted as requiring mandatory recourse to the local courts. 

Moreover, although the tribunal stated it was not strictly necessary in this instance, the tribunal also noted that in accordance with Article 33(4) of the VCLT, the tribunal is entitled to adopt a meaning which would best reconcile the two authentic texts.  In the current circumstances, such a meaning would be that the provision to submit disputes to the local courts is mandatory.

Notwithstanding its decision on the application of Article VII.2, the tribunal refused to determine whether it had jurisdiction to hear the claim.  Rather, it merely observed that the consequences of its decision were yet to be addressed by the parties and invited the parties to provide submissions on the effect of non-compliance with the provisions of Article VII.2, albeit on the basis that Article VII.2 requires mandatory recourse to the courts of Turkmenistan in the present case.

The decision is a timely reminder of the potential problems that can arise in the event that different language versions of the same BIT are not consistent.  It will also be interesting to see how Kilic continues with its case given the tribunal's decision that the requirement to submit the dispute to the local courts is mandatory.  There have been a number of investment arbitration awards recently where investors have sought to avoid such mandatory provisions on the basis of most favoured nation clauses (MFN).  Unfortunately for Kilic, however, there is no MFN clause in the Turkey-Turkmenistan BIT. 

Mike McClure, Herbert Smith LLP

A version of the Herbert Smith briefing has been published by Practical Law Company.