US embassy cable - 04ANKARA2842

UNCLAS SECTION 01 OF 02 ANKARA 002842 
 
SIPDIS 
 
 
DEPT FOR EB/IFD/OIA AND EUR/SE 
DEPT PLEASE PASS USTR FOR LERRION 
TREASURY FOR OASIA - MILLS AND LECHTER 
 
 
E.O. 12958: N/A 
TAGS: EINV, BEXP, ETRD, TU 
SUBJECT:  Dillingham Pulling Out of Turkey 
 
Summary: 
-------- 
 
 
1. In an April 27 letter to the Ambassador, Dillingham 
Construction International Inc. (DCII) advised that, due to 
the judicial system's failure to uphold its rights, it will 
pull out of Turkey and refrain from bidding on future 
projects.  DCII's experience in Turkish courts creates 
serious doubts as to whether existing Turkish legislation on 
access to international arbitration offers any protection 
for foreign investors.  DCII has consented to the Embassy's 
sharing its letter with Turkish authorities.  End Summary 
 
 
2. DCII and its Turkish partner Kutlutas formed a joint 
venture to design and construct several large roads in the 
Izmir/Aydin region.  DCII's disputes with Kutlutas over 
sharing of tax exemptions, use of joint venture assets and 
other issues began in 1993.  DCII took four cases to the ICC 
Arbitral Tribunal, in accordance with the joint venture 
agreement.  The ICC has ruled in DCII's favor in three 
cases, with one case pending.  Kutlutas refuses to 
acknowledge decisions and awards made by the ICC Tribunal 
unless they are brought through the Turkish court system for 
enforcement.  In one of the four cases, the Turkish courts 
rejected the ICC decision.  DCII is pursuing some claims in 
Turkish courts, but told us that the requirement for 
plaintiffs to deposit large sums into blocked accounts when 
launching a court case has been a factor deterring DCII from 
bringing two of the ICC decisions to the Turkish judicial 
system. 
 
 
3. In an April 27 letter to the Ambassador (see para 4 
below), DCII provided an update on its litigation, and 
stated frankly that it intends to leave Turkey and not to 
bid future projects in the country due to the lack of a 
level playing field for foreign companies in Turkey's 
courts.  Embassy intends to share this letter with Turkish 
policymakers to reinforce our longstanding message that many 
U.S. companies perceive the judicial system to be biased in 
favor of local firms.  We also intend to highlight the 
damage to investor perceptions by the courts' apparent 
failure to uphold international arbitration provisions in 
Turkish law. 
 
 
4. Begin text April 27, 2004 DCII Letter to Ambassador: 
 
 
Subject: Dillingham Visit (Dillingham Construction) 
 
 
Dear Mr. Ambassador: 
 
 
I, on behalf of Dillingham, wish to thank you for the visit 
we had with you earlier this month to discuss the problems 
that Dillingham has been having with the Turkish court 
system.  As discussed at the meeting, Dillingham had one ICC 
award rejected so far in the Turkish courts.  Dillingham has 
been awarded two other ICC decisions, but is debating 
whether to bring those awards through the Turkish courts. 
That decision will be based on the result of the current 
civil law suit in Turkey that Dillingham has against its 
partner (called the Ankara 1 case). 
 
 
The Ankara 1 case decision is critical, not only for 
Dillingham, but also because of the dangerous precedent it 
will establish within the Turkish Appeals Court against 
other foreign companies working in Turkey.  The Lower Court 
in this case ruled that the Joint Venture Agreement, signed 
between our Turkish partner and Dillingham, is a valid 
document, and that its language dictates the resolution of 
the dispute.  The Court of Appeals is reversing that Lower 
Court decision, thereby overriding the Joint Venture 
Agreement between the partners.  Even though our Joint 
Venture is a 50-50 partnership, the Court of Appeals is 
stating that the Turkish partner is the pilot firm, and 
therefore, can completely control Joint Venture joint bank 
accounts with only its single signature.  The Appeals Court 
is granting the Turkish partner unilateral authority to 
drain the joint bank account at his whim, for his 
convenience, and regardless of the partnership agreement. 
 
 
You asked what is Dillingham's future in Turkey.  I stated 
at the meeting, and herewith state again, that Dillingham 
will leave Turkey and never bid another project in Turkey. 
The principal reason is the lack of a level playing field 
within the Turkish court system for foreign companies. 
Dillingham has been in Turkey for over 15 years and feels 
that from past experience that this assessment is well 
founded. 
 
 
We thank you again for the time you spent with us.  We wish 
you success. 
Sincerely Richard L. Kunz 
End Text. 
Edelman