Execution of ICSID Arbitral Awards in Turkey In Light of the Decision of 12th Civil Chamber of the Court of Cassation Dated 28.04.2021

In light of the expanding global economy, the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (“the Convention”) was established to provide legal protection for investors who make investments in countries other than their own. This aims to facilitate international capital mobility. Under this framework, the International Centre for Settlement of Investment Disputes (“ICSID”) was constituted.

The scope of application of the Convention and thus ICSID's jurisdiction to protect international investors encompasses two distinct limitations: one on the parties to the dispute and the other on the subject matter of the dispute.

• Pursuant to the limitation foreseen in relation to the parties to the dispute, for a dispute to fall under its jurisdiction, one party must be a state signatory to the Convention and the investor must be a national of another contracting state, not the state against which the claim is brought.
• The subject matter of the dispute must arise out of an investment. However, the Convention does not explicitly define 'investment', and its scope is shaped by arbitral decisions and doctrinal opinions.

Two fundamental features distinguish ICSID from other arbitration proceedings.

• Firstly, ICSID allows investors to initiate arbitration without a pre-existing arbitration agreement between the claimant investor and the host state. This is exceptional considering that jurisdiction typically resides with states, and arbitration can only be initiated through mutual and corresponding declarations of intent regarding an existing or potential specific dispute, where parties are free to dispose.
• Secondly, ICSID arbitral awards are directly enforceable in member states without the need for a separate enforcement judgment. According to Article 54 of the Convention, each member state shall treat an ICSID arbitral award as binding and enforce the pecuniary obligations as if it were a final judgment of a court within that state.

However, a 2021 decision by the Turkish Cassation Court ("Court") has posed a significant challenge to the enforcement of ICSID awards in Turkey. In its decision dated 28.04.2021 (Case No. 2021/875 E., 2021/4586 K.), the Court ruled that due to the absence of a precondition being met — specifically, the requirement for direct enforcement proceedings in Turkey without first applying to any authority — ICSID awards could not be directly subjected to execution proceedings.

Upon this deficiency, which negatively impacted the Convention's implementation in Turkey and practically made the enforcement of ICSID awards impossible, Turkey notified ICSID on 01.02.2017, rectifying the situation by specifying that: “in cases of a written agreement between parties, the competent court is the commercial court of first instance at the location specified in the agreement. In the absence of an agreement, the competent court is the commercial court of first instance in the losing party's place of residence or domicile, and if neither is present, where the subject property is located. In locations without a commercial court of first instance, the civil court of first instance is competent."

This notification effectively addressed the lack of a designated competent authority, as identified by the Cassation Court, thereby enabling the direct execution of ICSID arbitral awards in Turkey.

Dr. iur. Onur Ergönen, Managing Partner
Kerem Baskın, Legal Intern