Category: Turkiye

Norton Rose Fulbright’s affiliated law firm in Turkey Pekin Bayar Mizrahi has hired former Pekin & Pekin Partner Maral Celepyan Avsar.

Specializing in dispute resolution, Avsar had been with her former firm since June 2021. Before that, she was a Counsel with Akol Law between 2019 and 2021. Earlier still, she was a Partner at the Avsar & Avsar Law Firm between 2014 and 2019. Between 2006 and 2014 she worked for Pekin & Pekin as a Senior Associate.

Pekin Bayar Mizrahi and Norton Rose Fulbright have announced they are forming an alliance in 2021, with the international firm’s former affiliated law firm in Turkey continuing as part of its then enlarged team (as reported by CEE Legal Matters on September 10, 2021).

Metaverse is not a product or a game. It was not created by a single company. Rather, it is a worldwide 3D network where companies, information and communication tools are comprehensive and interoperable. – Prof. Scott Galloway, University of New York

From the Web 1.0, where the information produced by centralized and controlling companies is consumed by individuals and companies make profits with the information economy model, the platform model where cloud computing systems are put into use, social media affects human life, streaming streams are derived, and finally individuals produce content and interact with the Web. We have stepped into 2.0 and now the ‘Metaverse’ phenomenon in the Web 3.0 world. The relationship between Web 3.0 and the metaverse is since Web 3.0 is the infrastructure of the metaverse. In Web 3.0, which does not have any central control structure, data will be shared, and a completely open-source entity will be established. The metaverse is the integration of virtual reality into daily life with 5G technology, rather than a digital product replacing social media. Therefore, we are talking about a reality rather than looking at the screen as if it is an external subject in the metaverse universe that goes beyond the screens, in which individuals take place and interact. In this reality, not only companies but also the people who create and manage the content wins.

The pandemic, economic dissatisfaction in modern human life, the change in the way of internet usage, and the digitalization trend are among the factors that are important in the worldwide emergence of the concept of the metaverse, its rapid spread. In addition, Mark Zuckerberg, the owner of a group of companies such as Facebook, Whatsapp, and Instagram, changed the Facebook application name to ‘Meta’ and the magnificent launch made the concept of metaverse unique popularity and awareness. To this effect, we can also add the IPO of the gaming company Roblox, the pioneer of Web 3.0. From this point of view, we can say that the metaverse is not a fad, a fashion, or a trend and that it will deeply affect many sectors.

Metaverse 101

Metaverse can be defined as blockchain-based, decentralized 3D platforms where we will experience augmented reality with virtual reality (VR) devices. These platforms can be a company product such as Facebook, Apple, or a product co-developed by users. There are also some procedures for entering the metaverse world. First, it is necessary to create an avatar as an identity. With this avatar, we can travel to a place we have never seen by paying with crypto money, carrying out trading transactions, doing office work online, attending concerts and events, talking with a world-famous person, and making a TV show. We will have the opportunity to own property rights on land anywhere in the world, which is very trendy now. And we will even be able to design the outfit we want in the metaverse, try it on and have a fashion designer make it.

Metaverse Effect in Sectoral Activities

It would not be an exaggeration to say that the internet and the business world have evolved with the metaverse. It has become a phenomenon that attracts and invests in almost every sector. To explain with examples, Yemeksepeti stated that they are working on predictions such as the use of crypto payment methods in restaurants and on-site experience at member restaurants. Paribu, one of the crypto trading platforms, has launched the Paribu Box market to list the Tokens of various projects in the metaverse universe, as well as to establish a domestic blockchain network. Uyumsoft Information Systems and Technologies Trade. Inc. manages R&D studies on business models that conduct new generation trade-in metaverse. On the other hand, Yolcu360 announced that it has developed an IoT device to receive and process machine data. Finally, Refik Anadol stated that by moving his projects to the Dataland Metaverse, his works can be experienced by NFT collectors with multiple sensors. 

Trade now seems to proceed on the metaverse. Money will now be replaced by digital currencies, cryptocurrencies, tokens, and digital wallets in the metaverse. As a result, people will sell their digital assets or use their crypto money as a means of exchange. At this point, it is worth mentioning that the world of the metaverse creates a real economic value. It is said that to date, sales of products such as virtual land, goods, and services have exceeded 200 million dollars.

Where is the law in Metaverse?

The legal infrastructure of the Metaverse world consists of smart contracts with blockchain technology. Therefore, it is very important to know these terms and concepts. Blockchain technology is a distributed database that enables the management of encrypted data on a security-protected and easily accessible network. In this system, we come across bitcoin currency. There is no central authority in the blockchain system, just like in the crypto money system. In other words, we cannot talk about the existence of a structure in which any country’s authority is involved. In this context, legal problems arise at the point where there is no interlocutor before us. The concept of smart contracts, on the other hand, is a computerized internet protocol that provides the basis of blockchain technology and differs from traditional contracts. Smart contracts will provide all the conditions of traditional contracts. However, unlike the classical contracts, we have made today, according to the perspective conveyed by technology giants; It is not possible to change (amend) the provisions of the articles in smart contracts and prevent some of them from being put into practice. Therefore, it is not possible to request revision or cancellation of contracts. According to other statements, there will be no need for third parties such as the ministry, bank, land registry, and notary public with smart contracts. For example, once an NFT is minted, there will be no need for copyright protection with the timestamp system and smart contract provisions. Because when the NFT was done by whom can be verified with the timestamp. Again, in the same direction, when a movie is produced, there will be no need to apply to the Ministry of Culture and Tourism for registration and registration procedures, copyright protection will already be provided with NFT minting. We cannot say that all states are ready for the metaverse world. In particular, it should not be approached as ‘we take action according to the process’. There is no global legal regulation and study for the metaverse current, which is developing day by day. This is also felt in cryptocurrency investment platforms. To prevent malicious intent and abuse regarding these platforms, it is necessary to establish a regulatory and supervisory mechanism.

In Metaverse, all the information that users create directly or indirectly, such as location and banking information, consumption and gaming habits, and biometric data, are personal data.  What kind of regulatory rules will be introduced in the processing and transfer of this collected ‘Metadata’ is a very important issue. Because there will be more control, freedom, and economic gain over the personal data, content, and assets arising from metaverse users. In addition, it is an undeniable fact that regulations will be needed to prevent actions such as data theft and hacker attacks and to eliminate the grievances arising from these actions. For this reason, in our next article, we will be discussing how to protect personal data, privacy, and privacy in the metaverse world and how current regulations will move forward.

By Onur Kucuk, Managing Partner, and Ezgi Anasiz, Associate, KP Law

A vibrant technological ecosystem, driving massive amounts of M&A transactions in Turkey and continuing the trend of 2021 well into this year, is the most important recent takeaway, according to Nazali M&A Partner Nilay Duran.

“Turkish M&A activity continues its momentum, both in terms of the number of deals and in terms of their value,” begins Duran. “We’ve seen a dramatic increase in M&A activity recently, with both inbound and outbound acquisitions.” She reports a high level of dynamism in the domestic market, with “e-commerce, and tech in general, leading the pack.”

The primary drivers of these activities are VC investments in Turkish tech start-ups, which ended up leading to a “big debate about the tech M&A sector in the country, with respect to competition law issues. Turkey is amending its competition legal framework and is calling for more powers for the competition authority,” Duran reports, sharing that a change in merger thresholds is to be expected. “These changes are aiming at the tech sector specifically, following the competition authority’s stance that the current threshold of TRY 250 million is not applicable to most such transactions,” she explains.

“Furthermore, the definition of a tech undertaking is concretized as an undertaking operating in the field of digital platforms, software, gaming software, financial technologies, biotechnologies, agricultural technologies, as well as chemical and pharma technologies and related assets,” Duran reports. “Such acquisitions are now subject to competition board approval, regardless of previously existing merger thresholds. Also, if the acquisition of a technology undertaking by any acquirers were to pass the total threshold of TRY 750 million it would be subject to mandatory filing,” she explains.

The reasoning behind such changes, according to Duran, is that the lawmakers wanted to more closely define the ambit within which the definition of a ‘tech undertaking’ is used. “Companies that do not fall under the definition need not adhere to these changes,” she says. Furthermore, Duran reports that the lawmakers wanted to “cover both acquisitions of start-ups that are maybe not yet commercialized, as well as major tech transactions that do not generate a lot of revenue, but lead to huge market power.” According to her, the competition authority is aiming to monitor both positive and negative competition levels more closely in this context.

“These changes are coming into force starting May 2022,” Duran reports. “This means that if a deal is not closed beforehand, and it falls within the scope of the changes, new regulatory steps must be considered.” She explains that this “insertion of a regulatory step could impact deal specifics and affect considerations, transaction timelines, as well as interim period restrictions.”

However, even with such legislative updates on the horizon, Duran reports that M&A activity in the country continues to boom. “2021 was extremely busy in this regard, with start-ups operating in gaming, proptech, fintech, and blockchain garnering immense investor attention. Hopefully, this investor appetite continues for 2022 as well,” she says.

She believes that Turkey could, thus, become an important start-up hub and that this also “lends an explanation as to the increased competition authority activity. Also, following the beginning of the war in Ukraine, Turkey has come onto many an investors’ radar – meaning that the tech sector will likely continue to grow,” Duran concludes.

The Turkish Competition Board’s (the “Board”) decision on whether undertakings that are active in the welding sector violated Article 4 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”) by way of determining their prices together has been published.[1]

The Board found that the investigated undertakings (i.e. (i) Gedik Kaynak Sanayi ve Tic. A.Ş. (“Gedik”), (ii) Kaynak Tekniği San. ve Tic. A.Ş. (“Askaynak”) under the control of Lincoln Electric Holdings, Inc., and (iii) Oerlikon Kaynak Elektrodları ve Sanayi A.Ş. (“Oerlikon”)/ Magmaweld Uluslararası Tic. A.Ş. (“Magmaweld”) under the control of Zaimoğlu Holding A.Ş.)) have violated Article 4 of the Law No. 4054 through price fixing in 2011 but did not impose an administrative fine on the investigated undertakings for their violation in 2011 due to the expiration of the 8-year statute of limitation. For the following periods from 2011 to 2019, the Board reached the conclusion that there is no sufficient finding to prove that the undertakings violated Article 4 of the Law No. 4054 and therefore did not impose any administrative fine on the investigated undertakings.

By way of background information, the Board explained in the decision that welding is a manufacturing method used to join metal or thermoplastic materials together, and that the welding sector in Turkey has an oligopolistic structure with three major players among many domestic and foreign companies operating in the market. These major players are the investigated undertakings, i.e. (i) Gedik (ii) Askaynak and (iii) Oerlikon/Magmaweld.

The decision of the Board sheds light on how the Board uses economic analysis for its assessment under Article 4 of the Law No. 4054 in an oligopolistic market under different scenarios. In the decision, the Board used economic analysis (i) to determine the duration of a cartel infringement that it found based on communication evidence and (ii) to decide on whether to apply the presumption of concerted practice where there is no evidence of communication among undertakings. The Board also explained how to determine the starting point for the statute of limitation for the infringements by-object. 

Theoretical Background Set out by the Board

The Board stated that (i) the documents related to the year of 2011 will be analyzed within the framework of whether there is any anti-competitive “agreement” between the undertakings since these documents include some evidence proving an agreement while (ii) the parallel pricing behavior of the undertakings during the period between 2017 and 2019 will be analyzed within the framework of “presumption of concerted practice” under Article 4/3 of the Law No. 4054 since there is no evidence of communication for this period.

Accordingly, the Board first provided its interpretation on the presumption of concerted practice provided under Article 4/3 of the Law No. 4054 which is as follows: “In cases where the existence of an agreement cannot be proved, a similarity of price changes in the market, or the balance of demand and supply, or the operational regions of undertakings to those markets where competition is prevented, distorted or restricted, constitutes a presumption that the undertakings are engaged in concerted practice.” According to the Board, the said article provides that, even if there is no evidence of communication, the Board may decide that there is concerted practice among undertakings provided that (i) the economic evidence shows a parallel behavior and (ii) the undertakings could not disprove the Board’s claim.

The Board’s Analysis on the Findings for 2011

Based on the evaluation of the documents collected from the undertakings, the Board found that (i) the general managers of Gedik, Askaynak and Oerlikon/Magmaweld took joint decisions on product prices and sales methods, (ii) they showed an effort to ensure implementation of these decisions by each undertaking and (iii) they warned those who do not comply with such decisions. Based on these findings, the Board decided that there was (i) a clear meeting of minds of the general managers of the competitor undertakings and (ii) an effort to implement monitoring and sanctioning mechanism (i.e. warning) in case of a “cheat” and “self-seeking”. Accordingly, the Board decided that the attempts and actions of the undertakings fulfil the necessary conditions for finding of a cartel infringement.

The Board then noted that although the documents show the existence of a cartel and the intention of maintaining the cartel, the documents concern only a period of 4 months, hence it is necessary to conduct an economic analysis on the price-cost data of undertakings in the relevant periods (i.e. 2011-2016) to determine the duration of the cartel agreement. In this regard, the Board found that although the economic analysis demonstrated a parallelism between the prices of the competitor undertakings, there was also parallelism between the relevant costs. Thus, the Board decided that the economic findings were insufficient to reach the conclusion that (i) the parallelism in the prices was independent from the parallelism in the costs and (ii) there existed an anti-competitive agreement especially considering that the sector consists of homogenous products and small number of players. For completeness, the Board requested further economic analysis from the Turkish Competition Authority’s Economic Analysis and Research Department which takes into account all variables that may affect the prices other than the cost variable, but the additional analysis did not provide any evidence for the existence of an anti-competitive agreement. Therefore, the Board only relied on the documents collected from the undertakings when determining the duration of the cartel.

Following that, the Board conducted an analysis on the punishability of the violation and examined whether the statute of limitation was expired with respect to the violation detected based on the relevant documents. The Board referred to Article 20 of the Law No. 5326 on Misdemeanour providing the statute of limitation as 8 years and explained how the starting point of the statute of limitation for competition law infringements can be determined. The Board noted that since the documents concern a restriction of competition by-object, it is sufficient to make the relevant correspondence for breaching the law. Hence, the infringement occurred when the correspondences are made. Indeed, the date of the last document to prove the existence of violation was 25 April 2011, and there was no other communication, document or economic analysis to prove the existence of violation for the following periods. Therefore, the Board stated that the infringement ceased on 25 April 2011 and given that Board rendered its decision to initiate the relevant investigation against the undertakings on 20 February 2020, the statute of limitation had run out, and there were no grounds to impose an administrative fine for the violation occurred in 2011.

The Board’s Analysis on the Findings for the Period of 2017-2019

In its analysis for the period of 2017-2019, the Board first highlighted a document dated 2011 indicating that the relevant undertakings showed effort to keep their coordination in secret and carried out measures not to leave any evidence behind (e.g. communicating via personal e-mails). Therefore, the Board noted the possibility that the reason why no communication documents were obtained after 2011 may be because the cartel agreement was well-hidden after that date and stated that the search for economic evidence has gained importance due to this possibility.

In light of the theoretical background set out above, the Board argued that the presumption of concerted practice provided under Article 4/3 of the Law No. 4054 is a tool which enables the Board to reach the conclusion that there was a violation based on purely economic evidence in the absence of concrete communication evidence. The Board noted that the existence of anti-competitive “agreement” and “concerted practice” needs to be proved based on an “evidence of communication” demonstrating the presence of coordination. Nevertheless, for the assessment under Article 4/3 of the Law No. 4054, the Board argued that:

“In order to find that the high prices that are independent from the costs are applied as a result of coordination, the pricing behaviors must provide a presumption for the existence of a communication within the framework of the ‘presumption of concerted practice’. In other words, the pricing behavior must create an environment where the need for communication between undertakings is replaced by that behavior.”

Accordingly, if the pricing behavior of the undertakings provides such an environment, this may enable the Board to presume that there was a violation even in the absence of communication.

After providing the results of the economic analysis, the Board explained that even though there was a period within the overall period from 2011 to 2019 where there was a parallel price increase which is independent from the increases in the costs, the following question needs to be answered before finding a violation: “Taking into account the tendency for oligopolistic dependency in the welding sector, are the price increases the result of an anti-competitive agreement or oligopolistic dependency?” On this note, the Board stated that while the parallel price increases as a result of oligopolistic dependency are considered as one-sided actions and do not amount to a competition violation; price increases as a result of a concerted practice or agreement, are considered to be a violation of Article 4 of the Law No. 4054.

In light of this, the Board stated that it analyzed the case based on an economic analysis on whether the pricing behavior in the market was in line with a situation where there is communication for coordination.

The relevant economic analysis revealed that the pricing behavior was parallel during the investigation period and the profitability of the undertakings was increased in the last periods. Nevertheless, it was found that the cost and currency exchange rate had a significant impact on the price changes, and when the data are adjusted for the impact of these variables, the price changes did not show the effect of an infringement.

More specifically, it was found that;

• The prices in the welding sector are affected by the exchange rate increases before the increase is actually reflected on the costs because the prices are increased based on the expectation of cost increases and in parallel with the increases in producer price index. Indeed, the prices in the sector were mostly correlated with the exchange rate and producer price index.
• The increase in the prices before the increases in the costs – in addition to the increased export opportunities due to the exchange rate – has led to an increase in the profitability of the undertakings.
• Even though the raw materials in the welding sector are supplied mostly from domestic producers, the first parameter to affect the prices is fluctuations in the exchange rate since the price of raw materials is indexed to the prices determined in the worldwide metal exchange markets.
• There are fluctuations and delays in the price transitions of undertakings – which is not expected in cases where the prices are increased based on an agreement.

Based on the above findings, the Board decided that even though the possibility of an anti-competitive conduct cannot be entirely excluded given the increased profitability observed in this period and the fact that the increases in the exchange rate reflected on the prices before its effect on the costs, there is no statistically meaningful correlation among the undertakings’ prices when the data are adjusted for the exchange rates and costs. The Board then concluded that the presumption of the concerted practice cannot be applied for the period of 2017-2019 since there are no indications of “market behavior that provides a presumption of communication”. Accordingly, the Board decided that the undertakings did not violate Article 4 of the Law No. 4054 during the relevant period.

Conclusion

The decision is noteworthy since, first, the Board underlined that, within the framework of the presumption of concerted practice, it may base its allegation under Article 4 of the Law No. 4054 based on purely economic evidence if the “market behavior provides a presumption of communication”. Second, the Board seems to consider itself liable to include the period between 2011 and 2016 into the duration of the “cartel” infringement if there existed a parallelism in prices (i) that cannot be explained by the costs within that period and (ii) “indicating an anti-competitive agreement” even if the last evidence of communication was dated 2011.

[1] The Board’s decision dated 08.04.2021 and numbered 21-20/247-104.

By Gonenc Gurkaynak, Partner, Zeynep Ayata Aydogan, Associate, and Beyza Adiguzel, Legal Intern, ELIG Gürkaynak Attorneys-at-Law

Former BTS & Partners Partner Okan Arican has joined Dentons’ Turkish affiliate Balcioglu Selcuk Ardiyok Keki Attorney Partnership as a Partner in the firm’s Corporate and M&A practice.

According to BASEAK, Arican’s practice focuses on “representing venture capital funds, private equity funds, and entrepreneurs.”

Before joining BASEAK, Arican spent over seven years with BTS & Partners, having joined the firm in 2015 as Senior Counsel and making Partner in 2021. Prior to that, he spent over four years as an Associate with the Koksal Attorney Partnership. He has an LLB degree from Koc University.

On March 21, 2022, Member States of the International Centre for Settlement of Investment Disputes (“ICSID”) approved a comprehensive set of amendments to the ICSID’s flagship rules for resolving disputes between foreign investors and their host States, after a five-year long process. This marks the fourth time the ICSID rules have been updated. Also, this is the most extensive review until now, as also explicitly acknowledged by the ICSID. The amendments will come into effect on July 1, 2022 and will apply to arbitrations commenced from that date onwards.

The amendment of the ICSID rules aim at modernising the rules based on case experience, expediting proceedings, making the process cost effective, enhancing the availability of alternative dispute resolution, leveraging information technology to reduce the environmental footprint of ICSID proceedings, increasing transparency and addressing former deficiencies such as a lack of guidance surrounding cost allocation.  The purpose of the amendment of the ICSID rules was explained by David Malpass, President of the World Bank Group and Chair of the ICSID Administrative Council, as follows: “The amended rules streamline procedures to enable greater access and speed, increase transparency, and enhance disclosures, with the ultimate goal of facilitating foreign investment for economic growth.”

Indeed, upon the examination of the amended rules, it can be seen that the significant amendments were introduced to achieve the projected purposes. This work aims to highlight the key amendments to the ICSID rules.

Key Amendments to the ICSID Rules

• Broader access to ICSID’s dispute resolution rules and services.

One of the most significant amendments was made in relation to jurisdictional requirements. In this scope, the ICSID’s ability to administer arbitration and conciliation proceedings was enhanced with the approved amendments to the ICSID Additional Facility Rules, by extending access to the ICSID arbitration and conciliation to non-ICSID Member States and their nationals, as well as to Regional Economic Integration Organizations (“REIO”).

Under the new amendments, ICSID’s authority cover legal disputes arising out of an investment between a State or a REIO on the one hand, and a national of another State on the other hand, where (a) none of the parties to the dispute is a Member State or a national of a Member State; (b) either the State party to the dispute, or the State whose national is a party to the dispute, but not both, is a Member State; or (c) an REIO is a party to the dispute.

So, with these amendments, States and investors will have access to Additional Facility arbitration and conciliation where one party or both the parties of the dispute is not an ICSID Member State or when a REIO (such as the European Union) is a party to the dispute.

• Greater transparency.

The amendments introduced a new chapter titled “Publication, Access to Proceedings and Non-Disputing Party Submissions”, with a view to increase transparency in ICSID proceedings.

Firstly, under the current rules (non-amended rules), party consent is needed for publication of awards, and publication of awards without the consent of the parties is prohibited. In this scope, what the amendments bring forth is that consent to publish awards (also, to publish supplementary decisions on awards, rectifications, interpretations, and revisions of awards, and decisions on annulment) “shall be deemed to have been given if no party objects in writing to such publication within 60 days after the dispatch of the document”. In other words, the introduced amendments deem consent to publication of these documents, unless a party objects within 60 days after their dispatch. Moreover, in case a party objects to publication, the ICSID shall publish excerpts of the aforesaid documents, in parallel with the previous rules and practice.

Another amendment relating to increased transparency is the new rules providing for the publication of orders and decisions with any redactions agreed to by the parties and jointly notified to the Secretary-General within 60 days after the order or decision is issued.

Furthermore, as a transparency-related change, the amended rules also create a presumption in favour of open hearings by stating that “The Tribunal shall allow persons in addition to the parties, their representatives, witnesses and experts during their testimony, and persons assisting the Tribunal, to observe hearings, unless either party objects.” In other words, after the entry into force of the amended rules, the Tribunal shall allow non-parties to observe hearings “unless either party objects”. If none of the parties objects to holding an open hearing and thus hearings will be open to non-parties, the Tribunal will be required to establish procedures to prevent the disclosure of confidential or protected information. 

• Expediting and increasing the efficiency of the proceedings.

The amendments introduced various regulations to expedite arbitrations and increase the efficiency of the proceedings, such as:

• Expedited arbitration: The updated rules provide that at any time, the parties to an arbitration conducted under the ISCID Convention may consent to expedite the arbitration by jointly notifying the Secretary-General in writing of their consent. Expedited arbitration is deemed to be suitable for lower-valued and less complex claims.
• Electronic filing of documents: The amended rules require all documents to be filed electronically. It is also regulated under the new rules that in special circumstances, the Tribunal may order that documents also be filed in a different format. This amendment is, in addition to reducing time and costs, also a significant step in terms of reducing the environmental footprint of the ICSID proceedings.
• Mandatory case management conferences: The amended rules regulate that with a view to conducting an expeditious and cost-effective proceeding, the Tribunal shall convene one or more case management conferences with the parties at any time after the first session to (a) identify uncontested facts; (b) clarify and narrow the issues in dispute; or (c) address any other procedural or substantive issue related to the resolution of the dispute. 

• Consolidation and coordination of relates the cases: According to the amended rules, parties to two or more pending arbitrations administered by the ICSID may agree to consolidate or coordinate these arbitrations.
• Bifurcation of the proceedings: The amended rules explicitly regulate that a party may request that a question be addressed in a separate phase of the proceeding. This request is called as a “request for bifurcation”. Moreover, the amended rules confirm the Tribunal’s authority to bifurcate proceedings ex officio, by stating that the Tribunal may at any time on its own initiative decide whether a question should be addressed in a separate phase of the proceeding.
• Stricter timelines at various stages in the proceedings, specifically, mandatory timeframes for issuing awards and decisions: The amended rules provide for reduced timeframes for various stages of the process. In particular, the new rules express that the Tribunal shall render the award as soon as possible, and also foresee certain mandatory timeframes in this regard, depending on the ground based on which is rendered.
• Required disclosure of third-party funding.

An amendment was introduced to the ICSID arbitration rules to address third-party funding. With the amendment, the ICSID arbitration rules address third-party funding for the first time. In relation to this amendment, it was explained in the official website of the ICSID that “Disputing parties have an ongoing obligation to disclose third-party funding—including the name and address of the funder—to avoid conflicts of interest that may arise out of such financing arrangements”.

In this scope, the amended rules impose an obligation on the funded party to disclose third-party funding. More specifically, under the updated rules, a party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defence of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding.

• Provisional measures.

Although the previous rules included broadly-worded provisions about provisional measures, the updated rules provide a clearer scope and standard on this matter.

In this scope, the amended rules exemplify the measures that can be recommended by the Tribunal upon a party’s request, with a view to preserve that party’s rights. Moreover, under the new amendments, procedure for requesting and granting provisional measures are specifically listed, as well. The new rules also provide that the Tribunal should consider “all relevant circumstances” in deciding whether to recommend provisional measures, including “whether the measures are urgent and necessary” and “the effect that the measures may have on each party”.

• Clearer guidance on cost allocation.

Further to the criticism received in relation with the Tribunal’s broad discretion regarding cost allocation, the amended rules, aiming at addressing these negative feedbacks, state that “the Tribunal shall consider all relevant circumstances” in allocating the costs of the proceeding and continue by providing a non-exhaustive list of factors that shall be considered to that end. In this scope, following factors are the ones explicitly listed to be taken into account under the new rules for allocating of the costs: (a) the outcome of the proceeding or any part of it; (b) the conduct of the parties during the proceeding, including the extent to which they acted in an expeditious and cost-effective manner and complied with these Rules and the orders and decisions of the Tribunal; (c) the complexity of the issues; and (d) the reasonableness of the costs claimed.

• Obtaining an early dismissal of a case due to manifest lack of legal merit.

Even though objecting a claim on the ground that is “manifestly without legal merit” was included in the previous rules, under that framework, such an objection was dealt as a “preliminary objection”. The new rules regulate the case of “manifest lack of legal merit” as a standalone rule under the chapter titled “Special Procedures”.

In order to cull out the claims which are manifestly ill-founded betimes, the new rules regulate that “a party shall file a written submission no later than 45 days after the constitution of the Tribunal” and “the Tribunal shall render its decision or Award on the objection within 60 days after the later of the constitution of the Tribunal or the last submission on the objection”

Conclusion

The long-awaited amendments of ICSID rules were approved by the ICSID Member States on March 21, 2022 and they will come into effect on July 1, 2022. These amendments reflect “extensive dialogue with ICSID’s membership and the public” and “the lessons learned from hundreds of ICSID cases”. The ICSID announced that, over the coming months, it will publish guidance notes to assist users in applying the updated rules.

In the official website of the ICSID, it is expressed that the changes are intended to, among others, modernize the rules that a number of lessons learned by virtue of hundreds of case experience, make the process increasingly time and cost effective, and make the procedure less paper-intensive, with greater use of technology for transmission of documents and case procedures.We are yet to see the ability of the amendments to actually meet the aims and needs of their adoption. That said, it is safe to state that these comprehensive set of amendments to ICSID’s flagship rules demonstrate the ICSID’s responsiveness to the suggestions and feedbacks of the Member States and the public, include innovative amendments and incorporate important improvements to the system in consideration of the needs of its users.

By Gonenc Gurkaynak, Partner, Tolga Uluay, Partner, and Neslinur Alptekin, Associate, ELIG Gürkaynak Attorneys-at-Law

On March 21, 2022, Member States of the International Centre for Settlement of Investment Disputes (“ICSID”) approved a comprehensive set of amendments to the ICSID’s flagship rules for resolving disputes between foreign investors and their host States, after a five-year long process. This marks the fourth time the ICSID rules have been updated. Also, this is the most extensive review until now, as also explicitly acknowledged by the ICSID. The amendments will come into effect on July 1, 2022 and will apply to arbitrations commenced from that date onwards.

The amendment of the ICSID rules aim at modernising the rules based on case experience, expediting proceedings, making the process cost effective, enhancing the availability of alternative dispute resolution, leveraging information technology to reduce the environmental footprint of ICSID proceedings, increasing transparency and addressing former deficiencies such as a lack of guidance surrounding cost allocation.  The purpose of the amendment of the ICSID rules was explained by David Malpass, President of the World Bank Group and Chair of the ICSID Administrative Council, as follows: “The amended rules streamline procedures to enable greater access and speed, increase transparency, and enhance disclosures, with the ultimate goal of facilitating foreign investment for economic growth.”

Indeed, upon the examination of the amended rules, it can be seen that the significant amendments were introduced to achieve the projected purposes. This work aims to highlight the key amendments to the ICSID rules.

Key Amendments to the ICSID Rules

• Broader access to ICSID’s dispute resolution rules and services.

One of the most significant amendments was made in relation to jurisdictional requirements. In this scope, the ICSID’s ability to administer arbitration and conciliation proceedings was enhanced with the approved amendments to the ICSID Additional Facility Rules, by extending access to the ICSID arbitration and conciliation to non-ICSID Member States and their nationals, as well as to Regional Economic Integration Organizations (“REIO”).

Under the new amendments, ICSID’s authority cover legal disputes arising out of an investment between a State or a REIO on the one hand, and a national of another State on the other hand, where (a) none of the parties to the dispute is a Member State or a national of a Member State; (b) either the State party to the dispute, or the State whose national is a party to the dispute, but not both, is a Member State; or (c) an REIO is a party to the dispute.

So, with these amendments, States and investors will have access to Additional Facility arbitration and conciliation where one party or both the parties of the dispute is not an ICSID Member State or when a REIO (such as the European Union) is a party to the dispute.

• Greater transparency.

The amendments introduced a new chapter titled “Publication, Access to Proceedings and Non-Disputing Party Submissions”, with a view to increase transparency in ICSID proceedings.

Firstly, under the current rules (non-amended rules), party consent is needed for publication of awards, and publication of awards without the consent of the parties is prohibited. In this scope, what the amendments bring forth is that consent to publish awards (also, to publish supplementary decisions on awards, rectifications, interpretations, and revisions of awards, and decisions on annulment) “shall be deemed to have been given if no party objects in writing to such publication within 60 days after the dispatch of the document”. In other words, the introduced amendments deem consent to publication of these documents, unless a party objects within 60 days after their dispatch. Moreover, in case a party objects to publication, the ICSID shall publish excerpts of the aforesaid documents, in parallel with the previous rules and practice.

Another amendment relating to increased transparency is the new rules providing for the publication of orders and decisions with any redactions agreed to by the parties and jointly notified to the Secretary-General within 60 days after the order or decision is issued.

Furthermore, as a transparency-related change, the amended rules also create a presumption in favour of open hearings by stating that “The Tribunal shall allow persons in addition to the parties, their representatives, witnesses and experts during their testimony, and persons assisting the Tribunal, to observe hearings, unless either party objects.” In other words, after the entry into force of the amended rules, the Tribunal shall allow non-parties to observe hearings “unless either party objects”. If none of the parties objects to holding an open hearing and thus hearings will be open to non-parties, the Tribunal will be required to establish procedures to prevent the disclosure of confidential or protected information. 

• Expediting and increasing the efficiency of the proceedings.

The amendments introduced various regulations to expedite arbitrations and increase the efficiency of the proceedings, such as:

• Expedited arbitration: The updated rules provide that at any time, the parties to an arbitration conducted under the ISCID Convention may consent to expedite the arbitration by jointly notifying the Secretary-General in writing of their consent. Expedited arbitration is deemed to be suitable for lower-valued and less complex claims.
• Electronic filing of documents: The amended rules require all documents to be filed electronically. It is also regulated under the new rules that in special circumstances, the Tribunal may order that documents also be filed in a different format. This amendment is, in addition to reducing time and costs, also a significant step in terms of reducing the environmental footprint of the ICSID proceedings.
• Mandatory case management conferences: The amended rules regulate that with a view to conducting an expeditious and cost-effective proceeding, the Tribunal shall convene one or more case management conferences with the parties at any time after the first session to (a) identify uncontested facts; (b) clarify and narrow the issues in dispute; or (c) address any other procedural or substantive issue related to the resolution of the dispute. 

• Consolidation and coordination of relates the cases: According to the amended rules, parties to two or more pending arbitrations administered by the ICSID may agree to consolidate or coordinate these arbitrations.
• Bifurcation of the proceedings: The amended rules explicitly regulate that a party may request that a question be addressed in a separate phase of the proceeding. This request is called as a “request for bifurcation”. Moreover, the amended rules confirm the Tribunal’s authority to bifurcate proceedings ex officio, by stating that the Tribunal may at any time on its own initiative decide whether a question should be addressed in a separate phase of the proceeding.
• Stricter timelines at various stages in the proceedings, specifically, mandatory timeframes for issuing awards and decisions: The amended rules provide for reduced timeframes for various stages of the process. In particular, the new rules express that the Tribunal shall render the award as soon as possible, and also foresee certain mandatory timeframes in this regard, depending on the ground based on which is rendered.
• Required disclosure of third-party funding.

An amendment was introduced to the ICSID arbitration rules to address third-party funding. With the amendment, the ICSID arbitration rules address third-party funding for the first time. In relation to this amendment, it was explained in the official website of the ICSID that “Disputing parties have an ongoing obligation to disclose third-party funding—including the name and address of the funder—to avoid conflicts of interest that may arise out of such financing arrangements”.

In this scope, the amended rules impose an obligation on the funded party to disclose third-party funding. More specifically, under the updated rules, a party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defence of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding.

• Provisional measures.

Although the previous rules included broadly-worded provisions about provisional measures, the updated rules provide a clearer scope and standard on this matter.

In this scope, the amended rules exemplify the measures that can be recommended by the Tribunal upon a party’s request, with a view to preserve that party’s rights. Moreover, under the new amendments, procedure for requesting and granting provisional measures are specifically listed, as well. The new rules also provide that the Tribunal should consider “all relevant circumstances” in deciding whether to recommend provisional measures, including “whether the measures are urgent and necessary” and “the effect that the measures may have on each party”.

• Clearer guidance on cost allocation.

Further to the criticism received in relation with the Tribunal’s broad discretion regarding cost allocation, the amended rules, aiming at addressing these negative feedbacks, state that “the Tribunal shall consider all relevant circumstances” in allocating the costs of the proceeding and continue by providing a non-exhaustive list of factors that shall be considered to that end. In this scope, following factors are the ones explicitly listed to be taken into account under the new rules for allocating of the costs: (a) the outcome of the proceeding or any part of it; (b) the conduct of the parties during the proceeding, including the extent to which they acted in an expeditious and cost-effective manner and complied with these Rules and the orders and decisions of the Tribunal; (c) the complexity of the issues; and (d) the reasonableness of the costs claimed.

• Obtaining an early dismissal of a case due to manifest lack of legal merit.

Even though objecting a claim on the ground that is “manifestly without legal merit” was included in the previous rules, under that framework, such an objection was dealt as a “preliminary objection”. The new rules regulate the case of “manifest lack of legal merit” as a standalone rule under the chapter titled “Special Procedures”.

In order to cull out the claims which are manifestly ill-founded betimes, the new rules regulate that “a party shall file a written submission no later than 45 days after the constitution of the Tribunal” and “the Tribunal shall render its decision or Award on the objection within 60 days after the later of the constitution of the Tribunal or the last submission on the objection”

Conclusion

The long-awaited amendments of ICSID rules were approved by the ICSID Member States on March 21, 2022 and they will come into effect on July 1, 2022. These amendments reflect “extensive dialogue with ICSID’s membership and the public” and “the lessons learned from hundreds of ICSID cases”. The ICSID announced that, over the coming months, it will publish guidance notes to assist users in applying the updated rules.

In the official website of the ICSID, it is expressed that the changes are intended to, among others, modernize the rules that a number of lessons learned by virtue of hundreds of case experience, make the process increasingly time and cost effective, and make the procedure less paper-intensive, with greater use of technology for transmission of documents and case procedures.We are yet to see the ability of the amendments to actually meet the aims and needs of their adoption. That said, it is safe to state that these comprehensive set of amendments to ICSID’s flagship rules demonstrate the ICSID’s responsiveness to the suggestions and feedbacks of the Member States and the public, include innovative amendments and incorporate important improvements to the system in consideration of the needs of its users.

By Gonenc Gurkaynak, Partner, Tolga Uluay, Partner, and Neslinur Alptekin, Associate, ELIG Gürkaynak Attorneys-at-Law

KP Law has advised Schottel on its acquisition of a majority stake in Elkon from Vera Capital. Pelister Atayilmaz Enkur advised the sellers.

Schottel is a manufacturer of propulsion and steering systems for ships and offshore applications.

Elkon is a Turkish marine electrical system integration specialist.

KP Law’s team included Managing Partner Onur Kucuk, Partner Ozge Tuncel, and Associate Esra Agic.

Pelister Atayilmaz Enkur’s team included Partners Gokhan Enkur and Kerim Pelister and Associates Sertac Kocahal and Behiye Gokceli.

A team led by former Akol Law Partners Omer Gokhan Ozmen and Gunes Yalcin has spun off to launch OzmenYalcin in Istanbul.

Specializing in banking/finance and capital markets, Ozmen had been with Akol Law since March 2019. Prior to that, he worked for YaziciLegal first as an Associate, between 2014 and 2018, and as a Partner, between 2018 and 2019. Earlier still, he was an Associate with Birsel Law Offices where he worked for over seven years.

Also focusing on banking/finance and capital markets, Yalcin followed a similar path to Ozmen. He was a Partner with Akol law between 2019 and 2022, preceded by over seven years with YaziciLegal, where he made Partner in 2017. Prior to that, he was an Associatee with Verdi ve Yazici Avukatlik Ortakligi.

The two Partners are joined by Counsels Murat Ayyildiz, Handan Bacioglu, and Damla Keskin Serbetcioglu.

Baker McKenzie Turkish affiliated firm Esin Attorney Partnership has advised Limak Investment on the sale of 100% shares of Ulug Enerji Dagitim ve Perakende Satis Hizmetleri to Actis Long Life Infrastructure Fund. Clifford Chance Turkish affiliated firm Ciftci Attorney Partnership advised Actis on the deal.

The Actis Long Life Infrastructure Fund is a British global investor in sustainable infrastructure. Ulug provides electricity distribution and retail services to the South Marmara Region of Turkey, which includes the provinces of Bursa, Balikesir, Canakkale, and Yalova.

Esin Attorney Partnership’s team was led by Partners Eren Kursun and Ali Selim Demirel and included Attorney Nigar Gokmen, Senior Associate Orcun Solak, and Associates Su Goktas and Fatma Bingol.

Clifford Chance’s team included Partner Itir Ciftci, Counsel Deniz Gocuk, and Associate Deniz Yetkin.