Background
The plaintiff, a joint venture, entered into a tender process with the defendant (an administration/company) on 22 September 2021 and was awarded a contract for personnel transport services for drill tower operations. A 12-month service contract valued at 2,770,200 Turkish Lira was executed on 30 September 2021. However, just one week later, on 12 October 2021, the defendant terminated the contract via notice dated 7 October 2021, citing contract clause 15.5 which provided: “The administration may terminate the contract at any time without providing any reason, by giving 5 days’ notice. In this case, the contractor cannot claim any damages, losses, compensation, etc. under any name. The contractor shall only be paid for completed services.”
To perform its contractual obligations, the plaintiff had entered into numerous sub-contracts with third parties for minibus rental services. When the main contract was terminated, the plaintiff was forced to withdraw from these sub-contracts, incurring a 500,000 Turkish Lira penalty fee under clause 9 of those agreements. Additionally, the plaintiff paid 45,000 Turkish Lira for railway equipment rental—despite using it for only 12 days, the contract required payment for a full month. The plaintiff sued for damages, arguing the termination was unlawful and lacking any legitimate purpose.
The Court’s Holding
The first instance court partially accepted the claim, awarding approximately 222,493 Turkish Lira in damages plus interest, but rejected the plaintiff’s claims for the penalty fees and rental losses. Both parties appealed. The Regional Court, in a decision affirmed on substantive grounds, rejected both appeals and upheld the first instance reasoning.
The court held that although contract clause 15.5 granted the defendant unilateral termination rights without stated cause, this right is not absolute. Under Turkish Civil Code Article 2, the principle of good faith must govern the exercise of all rights and obligations, including during contract performance. A right cannot lawfully be exercised if its sole purpose is to cause harm to another party. When a sophisticated merchant terminates a newly executed 12-month contract after just one week—before the contractor has had time to profit or recoup investments—without any legitimate business justification, such termination violates the good faith principle and constitutes abuse of the contractual right.
However, the court limited damages recovery to losses directly arising from the main contract itself. The court rejected claims for the 500,000 Turkish Lira penalty and the 45,000 Turkish Lira rental costs, reasoning that these resulted from the plaintiff’s sub-contracts with third parties, not from the defendant’s actions. The plaintiff failed to act as a prudent businessperson by accepting a penalty clause disproportionately large relative to the main contract value. Accordingly, the court affirmed the first instance award of damages for loss of expected profits.
Key Takeaways
- Contractual freedom to terminate has constitutional limits: good faith and the prohibition on abuse of rights apply even where explicit contract language permits termination without stated cause.
- Turkish Civil Code Article 2’s good faith principle applies throughout contract performance, including the termination phase; merchants must comply with Turkish Commercial Code Article 20/2’s requirement to act as prudent businesspeople in all commercial dealings.
- Damages for unlawful termination are recoverable (loss of expected profits), but only for harm directly flowing from the defendant’s breach—not for losses incurred through the plaintiff’s subsequent imprudent agreements with third parties.
- A party who negligently accepts a penalty clause grossly disproportionate to the underlying transaction value cannot recover that penalty as damages against the contracting counterparty.
Why It Matters
This decision reinforces that Turkish law does not permit contract rights to be exercised as instruments of pure abuse. Even when a contract appears to grant unilateral, unconditional termination authority, courts will police the exercise of that right through the good faith doctrine. For international commercial parties, the ruling signals that terminating a long-term Turkish contract within days of execution—absent a legitimate business reason—will likely be found unlawful and give rise to damages claims for lost profits. The court’s careful limitation of damages to direct losses, however, provides some protection to defendants: plaintiffs cannot use a contract breach as a springboard to recover losses from their own imprudent third-party dealings.
The decision reflects broader principles in Turkish law that balance contractual autonomy with fairness and commercial ethics, particularly in relationships between sophisticated merchants. It also underscores the significance of the good faith principle (Treu und Glauben in civil law tradition) as a powerful limitation on what appear to be absolute contractual rights.