The importance of Turkey as the gateway between the west and central Asia cannot be overestimated. There are many opportunities for foreign contractors in Turkey, particularly on major infrastructure work, and Turkish contractors work round the globe, especially in central Asia and the Middle East. Which means it is essential for foreign companies to understand what Turkish law may mean for their contracts.
Turkey is a civil law jurisdiction and its law is based on the Swiss Civil Code, Zivilgesetzbuch, which it adopted in 1926 after the downfall of the Ottoman Empire. The new Turkish Republic decided to abandon Shari’a law in favour of a more westernorientated legal system and, in this respect, it is significantly different from legal systems in the Middle East where Shari’a law continues to apply to varying degrees.
Contracts in Turkey are often based on the FIDIC suite of contracts, depending on the size, nature and complexity of the project. This is unsurprising because FIDIC forms are internationally recognised contracts with which foreign contractors and investors are more familiar.
There remain, however, some pitfalls for foreign companies to avoid. Turkish courts, for instance, can review and reduce the liquidated or delay damages otherwise payable, if the court believes that the amounts payable do not reflect the actual loss. Another key issue is Turkey’s treatment of foreign arbitration awards. Turkey is a signatory of the New York Convention and the power to refuse enforcement of an arbitral award on grounds that the award violates the country’s public policy is rarely exercised by the national courts.
In 1995, however, the Turkish Supreme Court refused to enforce an arbitral award on narrow technical grounds which were contrary to the parties’ agreement. The Supreme Court’s approach is a reminder that Turkish Courts might not always uphold the parties’ agreement.
Turkey is also a signatory of the International Convention on the Settlement of Investment Disputes (ICSID) and has signed about 80 Bilateral Investment Treaties, including one with the United Kingdom. This has created a fairer legal playing field for foreign investors working in Turkey and, to date, foreign investors have initiated at least six ICSID arbitrations against the Turkish government.