Investment Arbitration Reporter

By Jarrod Hepburn

In the latest chapter of a long-running battle between Turkey and the powerful Uzan business empire, the European Court of Human Rights has rejected claims by Kemal Uzan and two of his companies for a reported $165 Billion as compensation for the alleged expropriation of electricity interests.

The Strasbourg-based Court held that a Turkish law, which led to the termination of a long-term concession and the transfer to the state of electricity infrastructure operated by the Uzan group, did not infringe the claimants’ property rights because it came after repeated contractual violations by the Uzans and multiple warnings from the government.

As discussed below, the Court’s ruling of 29 March 2011 found it unnecessary to decide Turkey’s claim that the case was inadmissible because the same dispute had already been heard by ICSID tribunals.

Multiplicity of Uzan claims against Turkey, but arguments on parallel proceedings side-stepped by Strasbourg Court

The current case,* brought under the right to property in Article 1 of Protocol 1 to the European Convention on Human Rights (ECHR), was one of several lines of attack launched by the Uzan group following the asset seizure and contract termination in 2003.

In two 2009 ICSID awards, Cementownia “Nowa Huta” SA v Turkey and Europe Cement Investment and Trade SA v Turkey, tribunals declined jurisdiction over claims by Polish companies purporting to own shares in the two Uzan electricity companies that held the long-term concession, Çukurova Elektrik AŞ (CEAS) and Kepez Eletrik TAŞ (Kepez).

A third ICSID case, Libananco Holding Co Ltd v Turkey, remains pending. The Cypriot claimant in that matter has sought to distance itself from the Cementownia and Europe Cement cases.

This multiplicity of proceedings was seized upon by the government before the Strasbourg Court. Under the ECHR, the Court is empowered to dismiss a claim that has ‘already been submitted to another procedure of international investigation or settlement’. For their part, the claimants argued that there was no duplication, as in their view the ECHR proceedings concerned different parties, facts and legal questions to the ICSID cases. However, the Court skirted the issue, noting that it had found the case inadmissible on other grounds and thus would not rule on the parallel proceedings claim.

Expropriation claims dismissed; Court finds concession was terminated due to Uzan failings

The Court then moved to address the substance of the Uzan claims of expropriation. It readily agreed that the rights under the long-term concession contracts were ‘possessions’ of the claimants protected by the ECHR, and that Turkey’s actions constituted an interference with these possessions.

As to whether the interference had been done according to law, in the public interest, and with regard to a fair balance between the claimants’ rights and the public interest, the Court ultimately sided entirely with Turkey’s arguments.

Domestic courts had earlier ruled that the concession termination was prompted simply by the Uzan group’s successive failures to meet its contractual obligations. These included the failure to make necessary investments leading to insufficient electricity production, failure to apply the agreed tariffs, and the listing of certain state-owned electricity infrastructure on the public register in the Uzan companies’ own names.

In its assessment, the Court found no arbitrariness in these domestic rulings, with all due process being accorded to the claimants. The Court added that the claimants, sophisticated business operators with legal advisors, must have known about the new law and its impending effects on their concession contract. In total, this meant that the taking met the ECHR’s legality requirement.

The public interest criterion was also found satisfied, because the domestic law at issue had the objective of improving the domestic electricity market by liberalising it and opening it to competition. The Court noted that this objective had been adopted following recommendations of the World Bank and the IMF, and with a view to harmonising Turkish law with EU law.

Finally, the Court saw no violation of the ‘fair balance’ test in Turkey’s cancelling of the contracts, in light of persistent non-compliance by the claimants and multiple warnings from the relevant Ministry. In addition, the contract itself provided that no compensation would be paid in case of termination for fault; thus, the claimants should not have expected any payout. The Court rejected an argument from the Uzan group that they were not given sufficient time to remedy breaches before the contract was terminated. In the Court’s view, the period of more than 2 years between the law’s commencement and the eventual contract termination was sufficient.

Because of these weaknesses in the Uzan claim, the Court – instead of rejecting the claim – ruled that it was ‘manifestly ill-founded’ and therefore inadmissible.

As in the ICSID cases, Turkey was represented before the ECHR by lawyers at Freshfields Bruckhaus Deringer. Strasbourg-based lawyer Vincent Delattre represented the Uzan group.


* Kemal Uzan and others v Turkey (Application No. 18240/03), 29 March 2011

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