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Cablegate: Dillingham Pulling Out of Turkey

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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