The Recent European Court of Human Rights Judgment on Turkey’s Public Procurement Law May Have Far-Reaching Effects

On 24 November 2020, the European Court of Human Rights (“ECtHR”, “the Court”) held in its Kurban v. Turkey[1] judgment that there has been a violation of the right to property guaranteed under Article 1 of Protocol 1 of the European Convention on Human Rights (“the Convention”). The violation occurred due to a disproportionate annulment of a procurer’s public procurement contract and forfeiture of his guarantee on the grounds of unnotified criminal proceedings brought against him prior to the conclusion of the contract.

This article will shed light on the ECtHR’s assessment, address the effects of this judgment on Turkish law, and discuss the possible legislative amendments in Turkey’s public procurement law that may follow.

Facts of the Case

The applicant won a public tender for a construction project in Trabzon, Turkey and thereby entered into a public procurement contract in which he was required to deposit a guarantee – equivalent to 6% of the contract value (approx. 90,000 EUR at the time) – to ensure the contract would be fulfilled. According to the contract, the guarantee deposit would be returned to the applicant once the project was successfully completed.

The applicant commenced work a week after signing the public procurement contract and continued to work on the construction project for three months. Three progress reports were issued within this period, all of which were accepted by the procurement authority.

Three months after the start of work, the applicant was notified that the procurement authority had annulled the contract due to a criminal indictment issued against him, which prohibited him from participating in public tenders pursuant to Article 58 of Turkey’s Public Procurement Code (Law no. 4734). Moreover, the procurement authority decided to retain the applicant’s guarantee payment indefinitely as per Article 21 of Turkey's Public Procurement Contracts Code (Law no. 4735).

Following this, the applicant filed a lawsuit before the competent commercial court seeking the return of his guarantee and challenging the public tender contract's annulment. He argued, inter alia, that he had not been notified of the criminal proceedings at the time of entering into the contract and the notice of criminal proceedings had been unlawfully served on the legal aid lawyer appointed during his police questioning.

Both the first instance court and the appeals court rejected the applicant’s claims noting that the applicable domestic provisions did not allow for an exception from the rules when a contractor was unaware of a criminal case brought against him before entering into a procurement contract.

In separate proceedings, the Turkish Constitutional Court dismissed an objection regarding the annulment of Article 58 of the Public Procurement Code and Article 21 of the Public Procurement Contracts Code due to their unconstitutionality.[2] It held that the prohibition of a person’s public tender participation due to pending criminal proceedings was a preventive administrative measure and therefore did not go against the principle of presumption of innocence. As regards the retention of the guarantee, the Constitutional Court ruled that Article 21 of the Public Procurement Contracts Code complies with the constitution since a public tender participant’s engagement in prohibited acts or behaviour during the procurement process renders a contract void and the retention of a guarantee serves as an assurance and compensates the procurement authority’s loss.

Unable to obtain a favourable judgment from Turkish domestic courts and without the possibility to file an individual application before the Constitutional Court since the events took place before 2010 [3], the applicant finally submitted his claims before the European Court of Human Rights.

The Assessment of the European Court of Human Rights

In its assessment, the ECtHR held that there should be a reasonable relationship between the means employed by the state and the legitimate aim pursued. This reasonable relationship is upset when the person concerned has to bear an individual and excessive burden.

The Court found that no assessment of proportionality had been carried out in the domestic legal proceedings since the domestic legislation left no latitude to the procurement authorities nor to the courts to rule on any possible alternative arrangements.

In its proportionality assessment, the ECtHR held that the annulment of the contract with ex tunc (from the outset) effects and the retention of the guarantee was indeed disproportionate. The Court based this conclusion on the following:

  1. The negligence of the authorities in communicating the applicant’s indictment prior to the tender,
  2. The absence of the applicant's knowledge about the proceedings and the definitive nature of the annulment, and
  3. The forfeiture leaving no possibility of a reimbursement claim even if the proceedings resulted in no conviction.

Based on the above, the ECtHR ruled that the applicant’s right to property had been violated.

How Will This Judgment Affect Turkish Law?

Without a doubt, the ECtHR’s recent judgment will impact the jurisprudence of apex courts in Turkey, especially the jurisprudence of the Constitutional Court. However, upon close examination of the ECtHR’s reasoning in Kurban v. Turkey, it's evident that the root cause of the violation of property rights is the rigid legal norms found in Turkey's public procurement laws, rather than the judgments of domestic courts.

In this regard, the alignment of Turkish apex courts’ case-law with the ECtHR standards would only provide effective remedies for the claimants of such lawsuits, while a sustainable solution to the issues laid out in Kurban v. Turkey requires amendments to relevant provisions in Turkey’s public procurement laws.

On that note, the relevant recitals and the European Union Directive 2014/24 (“the Directive”)[4]  and the OECD Recommendation on Public Procurement (“the OECD Recommendation”)[5] may provide guidance to the lawmakers of Turkey.

The Directive contains, inter alia, rules on mandatory and facultative grounds to exclude an economic operator from participating in a procurement procedure. It requires that particular attention should be paid to the principle of proportionality when an exclusion decision is made. To this end, the OECD Recommendation specifies that the state should “develop a system of effective and enforceable sanctions for government and private-sector procurement participants, in proportion to the degree of wrong-doing to provide adequate deterrence without creating undue fear of consequences or risk-aversion in the procurement workforce or supplier community.”

With that said, as there are currently no proposals for such legislative amendments in Turkey, we advise that public procurement participants conduct due diligence for possible criminal investigations before entering into public procurement contracts. Otherwise, they may face excessive financial burden and years in courts (noting that the ECtHR took 10 years to decide on Kurban v. Turkey) to overturn the decisions of procurement authorities.

 

[1] The European Court of Human Rights, Kurban v. Turkey, no. 75414/10, 24 November 2020.

[2] Turkish Constitutional Court, Judgment no. E: 2017/68, K: 2010/2, 14 January 2010.

[3] The right to lodge individual applications before the Turkish Constitutional Court regarding claims of constitutional right violations were introduced in the Turkish Constitution in 2010.

[4] Council Directive 2014/24/EU of 26 February 2014.

[5] OECD Council, The OECD Recommendation on Public Procurement, 18 February 2015.