Turkey: A Cautionary Tale
When Turkey’s President Erdogan came to Washington in May, apart from his security detail beating up protesters, he had a meeting with 40 prominent U.S. investors where he urged them to increase investments in Turkey. The Turkish Ministry of the Economy also launched an image campaign under the slogan “Come to Turkey, discover your own story!” to attract foreign investors. The following should act as a cautionary tale.
In 1995 together with a Turkish partner I formed a limited company in Alanya on Turkey’s south coast as an investment in Turkish tourism. Everything was done by the book – the company was registered with the Foreign Investment Directorate, as I was an approved foreign investor who had paid up the minimum $50,000 in share capital. As a British investor, I was also covered by the BIT (Bilateral Investment Treaty) between Turkey and the UK, which stipulated that admitted investments shall at all times be accorded fair and equitable treatment and enjoy full protection and security
Our first venture was to open a discotheque on the harbour front, which despite teething troubles showed every sign of being profitable. But by the end of the second season trouble started. My partner failed to honour a promissory note, which in turn made it necessary for me to hire a prominent Ankara lawyer to represent my interests. This was the beginning of a legal nightmare, which lasted for 20 years.
It soon became clear I had stirred up a hornet’s nest. My lawyer discovered my partner had taken a credit in the company’s name to buy two flats for himself in Ankara, and a flurry of lawsuits was opened, also to cancel my partner’s management. A trustee was appointed but he resigned a few months later because of intimidation. I opened a civil suit for compensation against my partner and at the same time an application was made to the public prosecutor’s office. The Foreign Investment Directorate also intervened and gave my partner 15 days to submit the company’s accounts, but when they received no reply,they took no further action.
My partner succeeded in getting our company evicted from the premises by the non-payment of rent and he registered a new company with a new partner to take over the lease. He also secured the company’s equipment by the fraudulent issue of promissory notes. By this time, my Ankara lawyer had had enough and resigned, so instead I engaged a local lawyer.
In the compensation case there were 33 hearings and nine different judges in a case which by reasonable legal standards should have taken two years to conclude. The Alanya public prosecutor also charged my partner and his accomplices with fraud but thanks to an amnesty law, which benefited murderers, rapists and embezzlers, he got off the hook.
“This famous Ellis case,” as one Turkish judge called it, generated a great deal of attention. In 2002 the British ambassador met with the Turkish deputy prime minister and pointed out that leaving the matter unresolved could be damaging to Turkey’s prospects of attracting essential new foreign investment. Questions were also asked in the House of Commons about British investment in Turkey and the case.
When Prime Minister Erdogan visited Washington in 2004, he was presented with a briefing book by the American-Turkish Council, in which he was warned: “The list of legal cases that involve American and other foreign investors and Turkish parties, including the Turkish government, is unfortunately growing. The negative publicity that is generated by these commercial and legal disputes contributes to the impression that Turkey is a hostile environment for foreign investment. One case involving a British investor, for example, is even being debated in Parliament and in EU circles – adding ammunition to anti-Turkish groups in Europe.”
In June 2005 the Alanya court finally awarded me about $215,000 in compensation, which is where a new set of problems began. Because of a systemic error in Turkish law, I could only execute the judgment if the court fees had been paid. The losing party failed to do so, and if I did, this would give my partner the right to appeal and prolong the case for another two years. Rather than shoot myself in the foot, I complained to the European Court of Human Rights in Strasbourg about the violation of my right to a hearing within a reasonable time and the inability to execute the court’s judgment.
This was the beginning of a new nightmare, which lasted for 12 years. The problem was, and still is, that the European Court is swamped with complaints about Turkey.
When it comes to the violation of human rights, Turkey is still the front runner.
By the end of 2016, Turkey accounted for 12,575 out of 79,750 pending applications, which is remarkable as 47 countries are signatories to the Convention.
Waiting for justice is an enervating process, particularly as every enquiry about the progress of the case was met with a standard reply: “Having regard to the Court’s case load, I regret to inform you that it is not possible to provide you at this stage with a precise date on which the Court will resume its examination of the admissibility of the above application.” At a meeting with a senior lawyer at the Court in 2010, I was informed that my application would be given priority as it concerned non-execution of a judgment, but the Court was overwhelmed with 15,000 complaints about Turkey.
In 2013 my case was referred to a newly established Turkish compensation commission, which was empowered to examine complaints concerning the unreasonable length of legal proceedings and the non-execution of a judgment. Accordingly, through a Turkish lawyer I applied to the compensation commission, appealed to the Ankara Administrative Court and finally appealed to the Turkish Constitutional Court. The outcome was an award of $5,500 for the unreasonable length of legal proceedings.
In 2015 the European Court finally intervened, as no award had been made for the non-execution of the judgment, and it was not until April 2017 that the Court found for me. I was awarded $8,600 in non-pecuniary damage for the period 2005 – 2010, when the Turkish law was changed.
In addition, Turkey was called on to remove obstacles to the enforcement of the 2005 judgment, which was the equivalent of closing the stable door after the horse had bolted. The total cost to me in 20 years of legislation was around half a million dollars, including not only legal costs and expenses but also my investment. If the case had been sent to arbitration at the ICSID (International Centre for the Settlement of Investment Disputes) in Washington, it would have cost upwards of one million dollars in legal fees and expenses.
Already in 2000 the EU Commission in a report on Turkey noted that “Investors need a stable, predictable and supportive legal and regulatory framework in order to make long-term investments.” But as this and other cases illustrate, this framework – especially since the rule of law has been suspended after the failed coup in 2016, is conspicuously lacking.