Following the devastating earthquakes that rocked Türkiye and Syria in February 2023, rescue, recovery and rehabilitation remain some of the dominant topics of conversation among the Turkish legal community.
The tragedy resulted in the deaths of more than 55,000 people across the two countries, with more than 17 million estimated to have been affected in some way. Inevitably this has meant that a large swathe of the legal fraternity has been directly impacted on a personal level, with many family and friends affected, but law firms have more than risen to the challenge and made themselves available to aid in the recovery.
As well as financial support, firms have offered up their services pro bono to help where possible. Paksoy corporate head Elvan Aziz outlines one specific instance in which she and her firm assisted a local school with getting education restarted following the death of its chairperson.
‘We helped [Turkish school] ATA Koleji with their dealings with the Ministry of Education and the Ministry of Associations, as well as convening the General Assembly, which was a real challenge. We had to locate board members throughout Türkiye – obviously some of them are very old, and some have suffered tremendous losses, so they were not feeling physically or mentally sound enough to continue their work.’
These types of sensitive matters are common to the pro bono efforts being handled by many law firms across Türkiye carrying the burden for organisations trying to get back on their feet. ‘We went to Ankara to meet with ministers, and found sponsors who are now helping with the rebuilding and getting education started again’, explains Aziz. ‘There were employment issues with their teaching staff, but we’re providing pro bono assistance and hopefully they will be on track to restart education soon.’
On a similar note, Tunç Fırat Dereli partner Zeynel Tunç, who was one of many lawyers to lose family and loved ones in the disaster, says that his firm’s team in Istanbul has taken an active role in coordinating relief works, while also putting together legal guides to ensure financial donations are being made effectively. ‘We published articles which shed light on legislative developments impacting earthquake survivors, as well as significant insights into evaluating the seismic resilience of buildings and numerous techniques for Turkish residents to test their properties,’ he explains. ‘The aim was to increase awareness and share information with a broad audience in the spirit of support and solidarity.’
A vote for more certainty
The narrow re-election of Recep Tayyip Erdoğan in May 2023 laid bare both the sharp divisions in Turkish society and the dire state of its economy, as the already weak Turkish Lira plummeted to another record low upon the market’s receipt of the result. Erdoğan’s unorthodox fiscal policies had, in the run-up to the election, only served to exacerbate the situation, so in June 2023 he made new appointments to the cabinet that appeared to signal a U-turn in his approach to remedying the situation. The respective appointments of Mehmet Şimşek to the post of leading the finance and treasury ministry, and of Hafize Gaye Erkan, a former Wall Street banker, as central bank chief, preceded the first interest rate hike in the country since 2021. Further measures outlined by the government included a measure limiting annual rent increases to a maximum of 25%, and a 34% increase in the country’s monthly minimum wage.
‘We’re looking at the decisions being taken by recent government appointments, and you can see a desire to return to the orthodox way of doing things that the whole world is more accustomed to seeing.’
Elvan Aziz, Paksoy
There is of course little chance that the election result will fully resolve the divisions in Turkish society, but a definitive result does bring with it a calming of economic waters, to an extent. On the market post-election, Aziz observes: ‘From a strictly business point of view, what I felt before the elections was that the uncertainty was a key element stopping business coming into Türkiye; particularly from an M&A perspective. What I know from having done this job for 25 years is that businesspeople like certainty – and the election result has given us a kind of certainty. We’re looking at the decisions being taken by recent government appointments, and the explanations being given out, and you can see a desire to return to the orthodox way of doing things that the whole world is more accustomed to seeing – rather than a “novelty” trial and error method that was being used previously. I think we’re seeing some positive results from that.’
This type of economic trend has also recently been seen in Latin America, where markets have looked favourably on countries where elections conclude with some semblance of stability, as opposed to those that are either in the throes of campaigns or that have resulted in unstable governments. However, opinion remains divided on Erdoğan’s staying power. Tunç says that the president’s victory was ‘received with mixed feelings due to initial uncertainty in the post-election economic policies and the team in charge of it’, but that ensuing appointments ‘created an optimism across local and international markets’, which has fed into positivity in the legal market.
Elaborating on her experience of the post-election legal landscape, Aziz notes a recent increase in transactional work. ‘There are of course some exits but there is slow growth that we hope will become more concrete,’ she explains. Foreign investors do appear to be receptive to the government’s change in tack, and so many forecasts for 2024 are now looking less gloomy.
As Aksan managing partner Oktay Şener notes, ‘developments in Istanbul have implications for the entire nation’. The city’s health can be seen as a barometer for that of the country, and, while other cities have their own sector focuses, the growth areas in Istanbul are also likely to be those that will dictate the national economy. The Turkish government sees the city’s future as the financial centre of the country, and indeed a financial hub in the wider international region. Green and sustainable financing has been a popular focus recently and is likely to become even more so, while the financial services sector is one of the central drivers of the city’s economy, with real estate assets being attractive targets for foreign investors – an ‘incredibly exciting aspect of Istanbul’, as Şener notes.
But while the prospects for growth are clear, notes of caution remain. Demir & Partners attorney Semih Yüksel is among the voices calling for ‘no more physical growth for Istanbul’, arguing that ‘this ancient city with a history of thousands of years can no longer bear this burden’.
Amid fears of another earthquake in Istanbul and the Marmara region, Yüksel expects the construction sector to be preoccupied by efforts to take precautions against such an eventuality, while Egemenoğlu Law Firm’s Dilek Gürsan notes the potential stresses on the sector in Istanbul, given that most of the construction companies are based there. According to Aziz, there has been ‘a lot of requests for proposals (RFPs), and some of the projects that were on hold are starting up again’.
Those recovery shoots may well also be nurtured within Istanbul’s lively startup landscape. M. Tarık Güleryüz of Güleryüz Partners Attorneys at Law has noted ‘a surge of startups in several sites in Istanbul, such as the Istanbul Technical University, Yıldız Technical University and more’. Such sites are able to offer relatively cheap workspaces that are attractive to software and technology-focused companies in particular. The energy sector is also attracting startup capital investment, especially in renewables. Güleryüz adds he has seen ‘an increase in foreign investment in Turkish firms, especially for tech startups such as mobile gaming companies, artificial intelligence startups and e-commerce platforms’.
Environmental, social and governance (ESG) topics are, in line with the rest of the world, also being seen as increasingly crucial to Turkish stakeholders. While the acronym continues to provoke debate over its legitimacy, major companies are unquestionably paying attention to this area, and many of the top players in Türkiye’s key industries are realising that their long-term financial performance will be tied to the integration of sustainability and ESG matters into business decision-making and operation processes.
In contrast, traditional banking and finance work has been less active. Speaking in late August 2023, Aziz described the market as ‘still a bit slow’, citing restrictions on banks and the devalued Lira as key factors. On a similar note, Tunç says the market ‘will take time to bounce back due to the lending narrow-down for the purposes of tackling inflation’, while citing restructuring and financing for energy, infrastructure and mining projects as areas for optimism.Türkiye’s renewable energy assets are also increasingly being seen as a target for foreign investors looking to diversify their portfolios.
Agreeing to disagree
It is unsurprising that the tough financial conditions of the past year have given rise to increasing volumes of dispute resolution work. Güleryüz notes ‘a steep increase in the number of arbitration files and cases filed both by and against our clients’, adding that ‘efficient and quick resolution of disputes becomes even more of a priority for businesses in such periods [of economic difficulty]’. Oğuz İsen of Isen & Kahveci Attorneys at Law reports increased contentious work in the construction, tourism, technology, and energy sectors, ‘including commercial lawsuits involving contractors, subcontractors, and associated service providers’.
As a means of dispute resolution, arbitration is becoming an increasingly common feature of larger commercial disputes, expanding out of its traditional realm of construction and projects disputes, while mediation is also on the rise. Gürsan comments that ‘due to the substantial and recently elevated costs associated with litigation, with the court system taking longer and longer to achieve results, there is an emerging trend to explore alternative dispute resolution methods’, adding that her firm’s bankruptcy and restructuring division has also been busy ‘as struggling businesses seek solutions to navigate the prevailing economic challenges’.
To support these trends, efforts have been made to combat criticisms of the Turkish court system, which is seen by many as slow and inefficient. On 1 September 2023, the country launched a new initiative whereby rental disputes will now be mandated for mediation. İsen feels confident that this will ‘undoubtedly benefit both our office and clients in handling rental issues more efficiently’, describing the initiative as ‘vital’ due to cases often being scheduled as much as 15 months after the submission of the initial lawsuit.
On the labour and employment front, a common trend has been the movement of operations from Russia and Ukraine to Türkiye. Lawyers practising in this area in Türkiye were already busy advising on job cuts and withdrawals from the country due to the economic conditions, but the arrival of operations transplanted from Russia and Ukraine added an inbound dynamic to the workload of the country’s top employment teams.
Türkiye’s energy sector has also been through a period of fluctuation. The combination of factors such as the pandemic, currency depreciation, and the worldwide energy issues resulting from the Ukraine conflict have meant that the domestic energy sector has suffered from a lack of investment. However, green shoots such as the increasing prominence of startups in the renewables space suggest that post-election, the sector may be due for a recovery. Tunç notes that energy law practices have been kept busy with the ‘massive amount of regulatory work due to storage-based licence applications with the regulator’. And continuing on an optimistic note, he asserts that ‘this new wave of licensing will turn into construction and project finance work for the market, once the permitting phases of these potential projects are gradually completed’.
On the insurance front, the sector has seen considerable change in terms of the resolution of conflicts within the industry. Prior to the economic crisis, it was common for insurers and reinsurers to settle issues without litigation; however, this has changed as economic conditions have worsened, and there is now much more contentious work, with the leisure and hospitality sectors among the most active.
The market make-up
Türkiye’s highly competitive law firm landscape remains a picture of contrasts, as the statistics from The Legal 500’s rankings demonstrate. The longstanding domestic full-service offerings such as Paksoy, BASEAK, Hergüner Bilgen Üçer Attorney Partnership and Moroğlu Arseven field strong and dedicated teams across the spectrum of the country’s most active practice areas. These firms compete with a selection of domestic firms that have partnerships with major international players, including Allen & Overy (partnered with Gedik & Eraksoy), Baker McKenzie (Esin Attorney Partnership) and White & Case (GKC Partners). Due to Turkish legislation regarding foreign firms operating in the country, these cannot be fully-fledged outposts of the international firms, and it is not difficult to be drawn into a lively debate about the success of these ventures compared with the domestic heavyweights. In the IP, media, tax, insurance, transport and competition markets there are also a number of prominent boutiques dedicated to their respective areas of expertise.
‘Stricter environmental laws may incentivise the adoption of renewable energy sources. This could involve subsidies, tax benefits, or mandates for certain industries to transition to cleaner energy sources.’
Dilek Gürsan, Egemenoğlu Law Firm
When considering M&A statistics, the fluctuations in deal values for both outbound and inbound investment demonstrate the extent to which Türkiye’s market is familiar with volatility. While the pandemic peaks and troughs are now in the rear view mirror, subsequent recovery has been stymied by economic policy failures and political uncertainty. Early anecdotal evidence points to post-election market growth, but the proof of the pudding will be in the coming year’s activity.
2023’s deal highlights reflect the diversity in the Turkish market that is likely to be a crucial factor in the country’s economic recovery. The energy and natural resources space remains a popular target, while the automotive industry has also seen a number of notable deals.
Economies of scale
As with the majority of businesses, law firms in Türkiye have faced considerable challenges as a result of the currency crash and unprecedented inflation. While businesses in Türkiye have become accustomed to some degree of rise and fall in their economic fortunes, domestic clients have had to reassess their expenses when it comes to legal advice, as well as in their own commercial activity.
Zahide Altunbaş Sancak and M. Tarık Güleryüz of Güleryüz Partners say these stresses have been keenly felt in the manufacturing sector: ‘The rising costs of raw materials and other production materials directly negatively affect these clients, and in turn, their first reflex is to reduce costs in third-party services they retain, including legal services.’ Such challenges have meant that Turkish law firms face a careful balancing act to acknowledge their clients’ pain points, while also ensuring their own accounts remain healthy.
In terms of workload, İsen outlines one route available to firms: ‘As we build our client portfolio, we’re steering clear of high workload, low-return projects,’ he explains. ‘Instead, we’re concentrating on more qualitative, project-based work.’ Gürsan says her firm is currently considering expanding into practice areas that are less affected by economic fluctuations, such as regulatory compliance.
From the client side, one option has been to invest overseas or explore the possibility of shifting some operations abroad. Sancak and Güleryüz say that they are increasingly fielding enquiries from Türkiye-based clients on ‘possible overseas business structures and overseas investments in an effort to ensure long-term financial stability through diversification’.
Laying down the law
On their clients’ primary concerns for this year, Turkish lawyers report a number of key issues. A 5% increase to the corporate tax rate, along with other extra tax burdens for corporates, has been a source of ongoing work for tax practices. Looking to the year ahead, Gürsan raises the prospect of ‘the implementation of more comprehensive and detailed regulations on carbon emissions, which would likely impact various industries’. Were businesses mandated to measure, report and reduce emissions in line with international commitments, firms would expect a flood of instructions on establishing emission reduction targets, and the implementation of more environmentally friendly technology.
Gürsan continues: ‘Stricter environmental laws may incentivise the adoption of renewable energy sources such as wind, solar, and hydroelectric power. This could involve subsidies, tax benefits, or mandates for certain industries to transition to cleaner energy sources.’ This area is already seeing attention from the Turkish government, with sustainable finance products becoming more popular. Incremental growth in terms of these deals is being forecast by firms at the forefront of transactional matters in the country. If markets improve earlier than expected, Tunç predicts ‘we may see the first wave of project financing of storage-based solar power plants at the end of the next year, thanks to their relatively short permitting process for their development’.
The competition law market in Türkiye is one of the busiest in the country, with many major domestic and international firms fielding specialist, experienced teams in the practice area. This lively legal landscape is born of a strict authority that has continued to up its volume of investigations, targeted either at individual businesses or across sectors. However, over the next year, competition and antitrust laws are expected to become an even bigger issue for companies doing business in Türkiye because, as İsen reports, legislative updates expected in the coming months could mean stricter rules for fast-growing e-commerce firms, which have until now been lightly regulated. Businesses have already been seeking advice on the new rules based on a draft law and existing EU regulations. Sancak and Güleryüz suggest the regulations’ impact ‘will be felt for years to come’.
Izmir is Türkiye’s third most populous city and has occupied a role as one of the Mediterranean’s most important ports for much of its extremely long and rich history. It continues to hold this position today, contributing around 6% of Türkiye’s overall GDP. The Legal 500 spoke to Devrim Çukur, managing partner of Çukur & Partners Law Firm in Izmir, to discuss the local market, trends and future developments.
Despite Izmir’s status as a ‘free zone’ and its outward-looking trading focus, the city has not been immune to the wider economic troubles in Türkiye; most notably rocketing inflation and the crash of Turkish currency to record lows against the US dollar. Çukur remains level-headed and optimistic, however, pointing out that Turkish businesses have ‘gained unique know-how in terms of economic crises and turbulence’. He adds that ‘compared to many countries, Türkiye is more experienced in doing business with and in managing high inflation and exchange rate risk’.
But while Izmir has been impacted by the wider economic problems to some degree, local law firms remain busy, with corporate and commercial, labour and employment, and regulatory work all booming.
According to Çukur, legislative developments in Türkiye have meant that ‘increased tax rates for companies, barriers on access to financial sources and tight foreign exchange legislation, as well as investigations involving competition, data protection and unfair commerce, have become hot topics for corporates’.
He points out that Izmir serves as a manufacturing hub for many industries, including automotive, electronics and home appliances, agriculture, food and beverages, machinery and construction materials.
There are, therefore, many businesses coming to firms for sector-specific legal advice.
He argues activity will pick up further once ‘economic balance is permanently restored’, predicting that, at this point, Türkiye will become a popular investment option for international corporates again, with ‘the volume of foreign direct investment and M&A activities to increase rapidly’.
Noting Izmir’s emerging position in renewable energy, Çukur observes that the region now supplies a ‘notable’ portion of the country’s renewable energy.
Looking beyond Izmir to discuss the progression of environmental, social and governance (ESG) related work in Türkiye, he comments: ‘While our clients made limited requests about these issues five years ago, now we regularly receive client requests on these matters and are more and more involved in legal aspects relating to sustainability and ESG, such as advising clients on compliance with environmental regulations or helping them develop responsible governance practices.’
However, this growth in ESG work comes with a caveat, with Çukur appreciating that while ‘most of the necessary legislation on these issues is in place, their enforcement by the government is not always very enthusiastic’.
Nonetheless, the greater focus on ESG matters globally has driven local firms to develop their coverage, with Çukur & Partners and others now offering a range of ESG services.
When asked for his thoughts on the future of the legal profession in Izmir and Türkiye more broadly, Çukur notes that ‘the Turkish market is getting harder and more constricted for law firms without a solid reputation’.
His reasons include the wider economic conditions, with a decrease in the volume of foreign capital being invested in Türkiye and reduced M&A activity making the market more competitive.
Meanwhile the length and cost of conducting litigation in Türkiye means that corporates have been turning to mediation and reconciliation in a bid to cut external legal spend, which has an impact on the volume of work available for firms. Some corporates have also been building up their own internal legal teams in a further effort to reduce spend – a trend which, in Çukur’s view, is also impacting firms.
Çukur also cites ‘increasing numbers of international law firms in the market’ and ‘old-fashioned professional regulations’ as sources of competition and constraint for Turkish law firms.
‘Many well-known local law firms are losing their competitiveness’, he observes, due to the rise of ‘new generation law offices’. However, Çukur doubts whether these emerging firms can sustain their challenge given the high operating costs in Türkiye and points to ‘wider use of AI and law-tech solutions’ as a potential means of shoring up the market’s more established players.