Background
A contractor and a public authority entered into a €63.86 million contract in April 2015 to rehabilitate eight units of the Keban Hydroelectric Power Plant. The contract became effective after letters of credit were established in March 2016. The authority later asserted that the contractor had failed to submit required project documents—including a work program, project-management plan, and quality plan—despite repeated requests.
In March 2017, the authority terminated the contract and converted the contractor’s approximately €3.83 million performance security into revenue. The contractor sued for a declaration that the termination was wrongful and sought recovery of the security, accrued interest, stamp taxes, and the public-procurement authority fee. The Ankara 12th Commercial Court found that the authority had not properly served the contractually required ten-day default notice, declared the termination invalid, and awarded most of the requested amounts. Both parties appealed.
The Court’s Holding
The 27th Civil Chamber vacated the trial court’s judgment. It held that, because the contract was for performance in exchange for payment, termination took effect when the authority’s unilateral termination declaration reached the contractor. The contractor had requested a determination that the termination was wrongful, not that it was legally ineffective. By declaring the termination invalid in a manner implying continuation of the contractual relationship, the trial court exceeded the relief requested and created a conflict between its reasoning and operative judgment.
The appellate court further held that both parties were at fault in the termination. The contractor was at fault because it failed to comply with document requests made through several communications between July 2016 and February 2017. The authority was also at fault because it did not send a properly served notice allowing at least ten days to cure, as required by Article 26 of the contract. The trial court therefore should evaluate each claimed monetary item on the premise of shared fault.
Without examining the parties’ remaining appellate arguments, the chamber accepted both appeals, set aside the September 19, 2023 judgment, and remanded the case to the Ankara 12th Commercial Court for a new trial. The remand decision was unanimous and final under HMK Article 353/1-a.
Key Takeaways
- A declaration that contractual termination was “invalid” is materially different from a determination that an effective termination was “wrongful,” and a court must remain within the relief requested.
- A contractor’s failure to provide required project documents may constitute fault even when the owner’s termination procedure is itself defective.
- Failure to provide the contractually required cure notice can make the owner partly responsible for termination, requiring each damages claim to be reassessed under shared-fault principles.
Why It Matters
The decision distinguishes the legal effectiveness of a unilateral termination from whether that termination was justified. In Turkish works-contract litigation, that distinction affects both the permissible declaratory relief and whether the parties can be treated as remaining contractually bound.
The ruling also shows that procedural defects in termination do not necessarily eliminate the contractor’s responsibility for deficient performance. On remand, the commercial court must separately assess the performance security, interest, taxes, and procurement fee while accounting for both parties’ fault.