Turkey is going through troubled times with anti-government protests - at times involving local lawyers - dominating the headlines since 28 May. But until these dramatic events, foreign corporates and their legal advisers had been flocking to Turkey to enjoy the fruits of political stability, which under Recep Tayyip Erdogan’s decade-long rule has delivered a highly successful economy. GDP expanded by more than 8% in 2010 and 2011, and was still up by a relatively healthy 2.2% in 2012, compared with a shrinking eurozone.

Istanbul’s bid, in competition with Madrid and Tokyo, to host the 2020 Olympics is also a boost to the economy. A $19.2bn infrastructure budget for the city envisages a third airport, and new rail and road links between the city’s European and Asian sides. Furthermore, $130bn of investment is earmarked to accommodate Turkey’s fast-growing electricity consumption, as the government seeks to reduce reliance on energy imports through solar, wind and nuclear energy.

As Charles Lindsay, head of Allen & Overy’s Istanbul office, puts it: ‘Turkey is a big growth area for project finance. There is a huge amount of energy and infrastructure development that needs to be done here on a relatively urgent basis.’ Compared with the eurozone, Turkey has a robust domestic banking sector, but as Lindsay says: ‘There isn’t enough financing within Turkey to cover it. This means that you need international institutions to come in and fill that gap.’

Muharrem Küçük, partner at Turkish law firm YükselKarkinKüçük Attorney Partnership (YKK) points to the investment grade rating that Moody’s gave Turkey in May following Fitch’s upgrade in November 2012. This, he says, will open Turkey to more foreign capital, including institutional investors, and potentially cut borrowing costs.

Over the past three years, several foreign practices, including Baker & McKenzie, DLA Piper, Allen & Overy and most recently Pinsent Masons, have entered the Turkish legal market by establishing offices and forming joint ventures or strategic alliances with Turkish law firms. More are expected to follow.

A&O opened an office in Istanbul in May last year and later formed an association with Turkish law firm Gedik & Eraksoy. Lindsay is sanguine about opportunities in Turkey, especially in Istanbul, a city with a population of more than 15 million, which has congested roads and a creaking public transport system. ‘Istanbul is in desperate need of at least two major new crossings for the Bosphorus,’ he says, citing plans to construct a third bridge near the Black Sea, and the Eurasia Bosphorus road tunnel, expected to be finished by 2016. While the former project has yet to reach the financing stage, A&O is acting for the European Investment Bank and European Bank for Reconstruction and Development, which are lending €500m for the 5.4km Eurasia tunnel.

Energy is another big area for project finance work. ‘While Turkey’s GDP keeps growing so does the demand for power,’ says Lindsay. ‘Turkey runs pretty much at full capacity during peak hours,’ he says, highlighting new nuclear and coal-fired power projects. A&O is acting for the Abu Dhabi National Energy Company, or Taqa, on a $12bn coal-fired plant project in southern Turkey. This is part of an intergovernmental agreement between the UAE and Turkey.

Turkey has a significant and growing role in the transit of oil and gas supplies from Russia, the Caspian region and the Middle East to western Europe. A&O is also acting for a group of credit export agencies and financial institutions in the $5.1bn construction of the STAR oil refinery in Aliaga.

‘We are very busy with financing projects,’ says YKK’s Küçük, whose firm allied with DLA Piper in 2010. In the energy sector one of YKK’s clients is the State Oil Company of Azerbaijan Republic, which is a joint venture partner in the STAR oil refinery, and the main financial sponsor of the $8bn Trans-Anatolian natural gas pipeline project. The pipeline construction is expected to commence at the end of this year.

Jonathan W Blythe, a Scotsman who heads the energy practice at Sengüler & Sengüler in Istanbul, is upbeat too. ‘Turkey is an important place to be in terms of future development, everything is looking quite exciting,’ he says. Turkey is highly dependent on oil and natural gas imports, but Blythe observes that in recent years, thanks to foreign investment, Turkish Petroleum Corporation has been able to increase exploration activities, attracting the interest of major oil companies, such as Shell and Chevron, which is one of Sengüler & Sengüler’s clients. ‘The government is keen to try and find as much oil and gas as possible,’ he says, highlighting the petroleum bill currently before the Turkish parliament that aims to open up the sector and attract more foreign investment, and to new technologies such as ‘fracking’.

Another Sengüler & Sengüler client is independent Turkish oil producer TransAtlantic Petroleum, which the firm has advised in connection with the $164mn sale of its Viking oil field services business.

M&A activity is strong too. Last year was a bumper year for Linklaters, which represented Russia’s Sberbank in its $3.5bn acquisition of Turkey’s Denizbank from Dexia Group. This was the largest M&A deal in Europe, Middle East and Africa in 2012, according to M&A analysts Mergermarket. ‘There has been strong interest by private equity firms for medium- and large-scale investments in Turkey and long may it continue,’ Tom O’Neill, head of the Linklaters Turkey desk, says.

Capital markets, particularly debt, form another promising area. ‘It’s a market that is waking up in terms of international bond issuances and that is another reason why we wanted to come here,’ says Lindsay. ‘This market has grown a lot in the last couple of years and will continue to grow provided things settle down a bit here in the next few weeks and full confidence returns.’ A&O has given advice on bond financing deals in Turkey to clients such as HSBC, JP Morgan and Deutsche Bank. YKK meanwhile, has represented Turkish banks, including AKbank, Aktif Bank and Bank Asya on Islamic bond issues. Küçük points to a new capital markets law, which, alongside a new commercial code and code of obligations, aims to align Turkey with EU regulations and international market practices. ‘The government wants to liberalise the law environment, and try to be more helpful and understanding of the current needs of business in Turkey,’ he says.

E-commerce – worth $12bn in 2011 – is another fast-growing area. Turkish commercial firm Esin Attorney Partnership (EAP), an affiliate of Baker & McKenzie since 2011, recently advised on the sale of Joygame, Turkey’s number one online game publishing company, to Seoul-based CJ Games Corporation.

However, international law firms are not just interested in inbound investment, EAP founding partner Ismail Esin says. ‘The amount of work, in revenue terms, that we receive from other Baker & McKenzie offices and the amount we send to the other offices is more or less equal. This is an additional advantage for many international law firms in opening an office here in Turkey,’ he says. EAP derives 60% of its revenue from transactional work in private equity, M&A, banking and finance. Conglomerates Koç Holding and Akfen Holding, and private bank YapiKredi are among the firm’s long-standing Turkish clients.

O’Neill, a capital markets lawyer with 15 years’ experience in Turkey, is responsible for co-ordinating Linklaters’ strategy for the market. He expects more outbound M&A activity by a range of blue-chip Turkish corporates. ‘It is something that will arrive naturally with the progression of the market,’ he says.

As well as Arab, Chinese and Australian companies, UK-based corporates are investing heavily in Turkey. Some are clients of London Legal International (LLI), which is to date the only Turkish law firm in the UK. Attorney at law and founding partner Burcu Orhan-Holmgren launched the firm in 2007. She considered the statistics - UK-Turkey trade is currently worth over $11bn a year - and decided to try her luck, she says. ‘I just set up with a computer by myself to see if anybody would come and give me any work. From then onwards it never stopped,’ she says. The firm provides Turkish law advice in co-operation with four Turkey-based independent law firms on contentious and non-contentious matters related to real estate, mining and import-export. One recent highlight was the sale on behalf of a UK investor of a five-star hotel in Kusadasi – a resort town on Turkey’s Aegean coast. The firm has also been representing in the Turkish courts 220 British nationals over their investments in a Turkish beach complex, in a dispute with the landlord and builder.

For more complex cases, including cross-border disputes, international arbitration is an increasingly popular option for both foreign and Turkish investors. Noyan Göksu, formerly head of arbitration at Turkey’s top law firm Hergüner Bilgen Özeke, and now heading his own practice, says: ‘The Turkish business community is much less suspicious of international arbitration. Old prejudices are dissipating as Turkish companies become more global and are investing abroad.’ Göksu is advising Ankara-based TEPE Construction in relation to two ongoing international arbitration disputes.

Zurich, Geneva and Paris are the most favoured international arbitration seats. Onur Küçük, partner at Istanbul-based Bener Law Office, explains that the Turkish civil code is partly based on Swiss civil law. ‘It has almost been a habit to use Swiss law as a governing law and arbitration in Switzerland, but in the past three to five years there has been a move to London,’ he says. Over two-thirds of Bener Law’s clients are international, including AIG, Bosch, KPMG, Marks & Spencer and Nine West.

Although many international law firms are opening offices in Turkey, under Turkish bar rules foreign law firms are only allowed to advise on international or home law. Only Turkish citizens qualified as Turkish attorneys can practise local law and have rights of audience, but they would lose these rights if they were employed by foreign law firms in Turkey.

Partnerships between Turkish and foreign lawyers are not permitted. International law firms with offices in Turkey – which must register as foreign attorney partnerships with a local Turkish bar – have linked up with Turkish lawyers, but they maintain two distinct operations. Take Baker & McKenzie Consultancy Services Attorney Partnership in Istanbul, which is a distinct legal entity from Turkish affiliate Esin Attorney Partnership. Other foreign law firms, such as DLA Piper, have similar structures in place. The restrictions on foreign-local partnerships have their downsides. Göksu, who recently entered into a joint venture agreement with Pinsent Masons says: ‘International law firms can be established legally but they cannot practise Turkish law even if they employ Turkish lawyers, so they must have dual structures, such as my firm and Pinsents. This is a major challenge.’ This requires the Turkish and foreign law firms to maintain different brands with separate logos, letterheads and marketing materials.

Turkey has 78 bars. The most important one, the Istanbul Bar Association, which represents over a third of the country’s 66,000 lawyers, is mulling amending the rules to enable foreign law firms established in Turkey to provide Turkish law advice; however, this is unlikely to happen in the near future.

There are mixed views on the merits of establishing an office in Turkey and formal associations with local law firms.

Linklaters has been active in the Turkish market since the mid 1980s and in 2008 established a dedicated Turkish ‘virtual’ desk, which now consists of between 15 and 20 partners focused on the Turkish market. ‘We have been working with most of the top Turkish law firms extensively for over 20 years. We know them very well and clients generally respond favourably when we are able to propose the skills and experience of the Turkish firms together with our own. We constantly evaluate changes in the market, but we believe that our current strategy is working well for our clients across our main practice areas,’ O’Neill says.

Bener Law Office is another law firm that is eschewing formal alliances with international practices. Managing partner Erim Bener explains that the full-service mid-size firm, focused on employment, corporate immigration and litigation services for businesses, receives referrals from a wide variety of sources, including Ius Laboris (a global alliance of employment law firms), the US Alliance of Business Immigration Lawyers, and foreign law firms such as US Fragomen, Wragge & Co and Berwin Leighton Paisner. ‘We would need an incredible offer in order to team up with just one firm at the expense of all our other international referral work,’ adds business development director David Clark.

Bener is concerned about the fragmentation of the Turkish legal market, as young, talented associates set up on their own, undercutting more established firms. This is putting an unwelcome squeeze on fees. ‘There is unbelievable price pressure in Turkey and the international law firms have also reduced their prices in order to get some market share,’ he says.

The price pressure is particularly strong in project-related work, which accounts for 25% of the firm’s revenue, says Bener, whose legal outfit is the rare product of a merger between two Turkish firms. Despite the difficulties, Bener is pursuing further merger opportunities: ‘We are in negotiations with a couple of Turkish firms,’ he says.

Blythe explains that law firm partnerships are comparatively new in Turkey. This is, in part, attributable to a business culture where some of the largest Turkish conglomerates are family-run patriarchal concerns. ‘The guy at the top makes all the decisions. That same pattern is repeated in the legal profession,’ he says.

Esin, like others, believes that the market needs consolidation. ‘People have to learn to manage their egos rather than being slaves of [them]. Senior partners should learn to share with the next generation. Only then will there be meaningful consolidation. Otherwise young people will continue to leave and set up their own firm.’

Not only are fees lower, but fee structures in Turkey are very different. LLI’s Orhan-Holmgren says: ‘The concept of billing on an hourly basis is alien to Turkey. The lawyers’ time has never been valued.’ Göksu concurs: ‘The Turkish business community is not necessarily accustomed to the way London, New York or Moscow law firms structure their fees, so hourly rates are a big challenge.’

There are other notable differences in the way of doing business that English law firms trying to break into Turkey must consider. For example, Orhan-Holmgren says that, unlike their Anglo-Saxon counterparts, Turkish clients do not tend to expect their lawyers to keep them constantly in the loop. ‘Very few Turkish lawyers have the ability to produce regular updates,’ she says, adding: ‘There also isn’t a deadline culture. If someone says that I will deliver it by 3 o’clock, in 90% of the cases this will not happen.’

Recent anti-government demonstrations, which were sparked by the redevelopment of a much-loved central Istanbul park and adjacent square, led to the government agreeing to suspend the plans until a court ruled on the issue. Asked whether this could jeopardise other large-scale projects in the city, Göksu said: ‘The protests are not per se against large infrastructure projects. It is the way the government is proposing these projects, without much public debate around them, including on their impact on the environment. These are the real concerns of people.’ Göksu, whose firm is advising Colorado-based construction and engineering firm CH2M Hill, which is supporting Istanbul’s Olympic bid, says he is unconcerned.

But some lawyers are worried about the impact of the protests on investor confidence. The main stock market index in Istanbul lost almost 10.5% on 3 June, although it has recovered some lost ground. ‘This has definitely had an impact on concluding transactions but one need only look at the swings and roundabouts on the Istanbul Stock Exchange to recognise how difficult it is to predict longer term implications,’ says O’Neill.

Esin closed a €36.5 million inbound M&A deal in the energy sector 10 days into the protests, advising Germany’s hedge fund manager Aquila Capital. Commenting a week later amid the continuing stand-off between the government and demonstrators, Esin said that while clients were not cancelling any new investments, they were postponing them to ‘wait and see’ how things would pan out in the subsequent weeks.

However, there is a different, more positive, view. Orhan-Holmgren took a call from a client while in Istanbul during the protests. She says: ‘The client, who had invested heavily in Turkey, was quite pleased. [The protests] reassured him that Turkey was going to stay as a democratic republic. Foreign investors have always known that the government supports foreign investment but at the same time there has always been concern that this country is going to become an Islamic republic, which will then have an impact on foreign investment.’

This broader point about the future of the country was a major factor – beyond issues related to the profession – in Turkish lawyers taking to the streets too. Speaking to the Gazette a week after the start of the protests, a senior Turkish lawyer said: ‘The majority of the protesters are people like ourselves. More than half of our office has been going down to Taksim Square.’

Another senior lawyer added: ‘The people who are protesting don’t like the style of the prime minister, who has been very insistent on getting his own way. They are the secular, educated professional people, who would not support a more conservative Turkey.’

Rule of law in jeopardy

On 12 June over 2,000 Turkish lawyers demonstrated inside Istanbul’s Çaglayan Courthouse against the detention of more than 50 colleagues who joined anti-government protests.

The Law Society had previously raised concerns about the treatment of lawyers in the country. More than 60 lawyers were arrested and at least 35 detained in custody in the year to February, according to Chancery Lane.

In January the president (Ümit Kocasakal) and board of the Istanbul Bar Association were indicted on criminal charges of attempting to influence the members of the judiciary in the ‘Sledgehammer’ case (which they deny). (This case concerned a conspiracy to trigger a coup against the government. Three former army generals were each jailed for 20 years.) The indictment followed their request to the courts to conduct the trial according to law and fair trial principles.

Part of the Society’s remit is to uphold the independence of the legal profession, the rule of law and human rights throughout the world. In February, president Lucy Scott-Moncrieff wrote to Recep Tayyip Erdogan to raise concerns about the number of cases brought in Turkey over the last year against lawyers representing individuals whose cases involve human rights principles. The Society requested that ‘proceedings against them be discontinued and that they should be allowed to carry out their legitimate activities as lawyers without interference’.

Tony Fisher, a member of the Society’s human rights committee, points to the trial of 46 lawyers who have been charged with terrorist-related offences arising from their representation of the Kurdish leader Abdullah Öcalan. This trial, he says, has done much to bring together disparate parts of the profession in Turkey.

Fisher, who has undertaken trial observations on behalf of the Law Society in Istanbul, tells the Gazette: ‘The plight of these and other lawyers in Turkey who have been the subject of arbitrary arrest and prosecution is a chilling illustration of how far things can go wrong if the role of the lawyer is not protected, the normal checks and balances against the abuse of power by prosecutorial authorities are not respected, and those checks and balances are not enforced by an independent judiciary. The Istanbul Bar Association, not always fully sympathetic to Kurdish issues, has rallied around these defendants and provided huge support, sometimes putting themselves in harm’s way in the process.’

These issues also have an impact on business and investment. Julie Mamou, policy adviser at the Law Society for Europe and the Commonwealth of Independent States, says: ‘If Turkey becomes a place where lawyers are bullied and the rule of law is not enforced, it’s not a good place to do business either.’

Marialuisa Taddia is a freelance journalist