Lotus Holding Anonim Şirketi v. Turkmenistan

Case summary

At a glance

Parties: Lotus Holding Anonim Şirketi (Turkey) v. Turkmenistan
Case no.: ICSID Case No. ARB/17/30
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules 2006 (Rule 41(5) summary dismissal)
Treaty: Turkey–Turkmenistan BIT; Energy Charter Treaty
Tribunal: Vaughan Lowe (President), James H. Boykin, Brigitte Stern
Sector: Energy and construction (EPC contracts)
Outcome: All claims dismissed on 6 April 2020 under ICSID Arbitration Rules 41(5) and 41(6) as manifestly without legal merit.
Amount: The Request for Arbitration claimed, among other sums, EUR 35,000,000 on the Turkmenbashy Refinery contract, USD 15,650,000 in retention, EUR 9.2 million for the Avaza Power Plant, and EUR 5,625,000 and EUR 2,650,000 on two Ashgabat contracts. Nothing was awarded. The Claimant was ordered to pay the Respondent USD 983,100.98: 90% of its legal fees and disbursements (USD 857,210.70) plus its share of the costs of the proceeding (USD 125,890.28).

The dispute

Lotus Holding, a Turkish company, is the sole shareholder of Lotus Enerji. Between 2007 and 2011 Lotus Enerji signed five construction and energy contracts with Turkmen State bodies, among them the Energy Ministry, the Turkmenbashy Refinery and Turkmengas. Lotus Holding alleged that Turkmenistan failed to pay sums due, including retentions, and wrongfully terminated the refinery contract. It said these acts breached the Turkey–Turkmenistan BIT and the Energy Charter Treaty, including the rules on expropriation, fair and equitable treatment, MFN, national treatment and the umbrella clause. Lotus Enerji had been declared bankrupt in Ankara on 24 November 2016 and is controlled by the Turkish Bankruptcy Directorate. Turkmenistan applied for summary dismissal under ICSID Rule 41(5). It argued that the board authorisation was defective, that the claims belonged to Lotus Enerji and not to Lotus Holding, that the bankruptcy authorities had given no authorisation, that the notice, cooling-off and local-courts requirements of BIT Article VII and ECT Article 26 had not been met, and that Lotus Enerji could not be joined without its consent.

Key holdings

The claims must be judged as set out in the Request for Arbitration. Read that way, they are claims for money owed under Lotus Enerji's five contracts. Calling non-payment an expropriation or an MFN or national-treatment breach does not change its contractual nature unless the treaty breach is properly pleaded. ¶¶ 164–171
Parties may claim only for their own rights. The contractual rights and claims to money belong to Lotus Enerji, a legally separate company. Lotus Holding had only a contingent shareholder interest in dividends or residual assets, and it cannot stand in the shoes of its subsidiary. ¶¶ 172–180
Lotus Holding pleaded no distinct claims of its own. Its passing references to corruption, seizures and raids were not claims. The later claims for lost dividends, expropriation through forced bankruptcy and money spent to keep Lotus Enerji afloat are new and different claims, and the Request lacks the 'connective tissue' linking the contract breaches to treaty breaches that injured Lotus Holding. ¶¶ 182–187
ICSID Rule 40 and the reservation of rights in the Request do not allow fundamentally new claims to replace the primary claims. A claim that is manifestly without merit cannot be cured by changing it into a different one. ¶¶ 189–194
All claims are manifestly without legal merit and are dismissed under Rules 41(5) and 41(6). Lotus Holding's lack of standing also defeats its argument for importing an umbrella clause through the MFN clause. The dismissal is without prejudice to claims by or in the name of Lotus Enerji, or to other claims by Lotus Holding. Under judicial economy, the Tribunal did not decide the remaining objections. ¶¶ 196–199
Costs follow the event. The Respondent's refusal to pay its advance until the Claimant paid did not justify any departure from that rule. The objection under BIT Article VII was not suitable for resolution under Rule 41(5), so the Respondent's recoverable legal fees were reduced by 10%. The Claimant pays USD 983,100.98, and any question about the litigation funder LexShares is for the Claimant and LexShares to resolve. ¶¶ 207–214

Procedural history

28 July 2017Lotus Holding filed its Request for Arbitration.
22 August 2017The ICSID Acting Secretary-General registered the Request.
5 April 2018The Tribunal was constituted.
4 May 2018Turkmenistan filed its application under Rule 41(5).
13 August 2018The proceeding was suspended under Administrative and Financial Regulation 14(3)(d) because neither party had paid the advances. The Claimant paid its share in May 2019.
27 June 2019Turkmenistan filed its Updated Rule 41(5) Application.
17 September 2019The first session and the hearing on the Rule 41(5) application were held in Paris.
4 October 2019Procedural Order No. 1 was issued and the parties filed their submissions on costs.
6 April 2020Award: all claims dismissed under Rule 41(5), with costs against the Claimant.

Tribunal, counsel and experts

Decided by: Vaughan Lowe President — appointed by the institution
James H. Boykin Co-arbitrator — appointed by the claimant
Brigitte Stern Co-arbitrator — appointed by the respondent
For the claimant: Egemenoglu Law Firm · Offit Kurman · Butzel Long
For the respondent: Squire Patton Boggs