Sudan v. Turriff Construction Company

Facts

On 8 November 1959, the Sudanese Government and the Government of the United Arab Republic concluded an agreement for the full utilization of the Nile Waters. This agreement led to the building of the High Aswan Dam. As a result of this agreement, the Sudanese Government needed to create a major housing project for the people whose land would be inundated. The project was to be finished before July 1963 (i.e., in 44 months). It required the building of a new town and 26 villages. In August 1961, the first material advance was made. The firm F.H. Kocks K.G. of Koblenz was appointed to prepare and issue tender documents. However, tenders were not invited until 31 March 1962. By then, only 15 of the 44 months remained and the situation was urgent. In September 1962, the Sudanese Government decided to award the contract to the Turriff Construction Company. Because of the time schedule, Turriff had to work faster. Following the contract, complaints immediately arose between the Parties. The Sudanese Government complained that Turriff was delaying progress, and Turriff complained they were unable to proceed due to frequent changes in decisions, and inadequate plans, raw materials, transport facilities and the like. These complaints finally came to head when on 28 August 1963, the Sudanese Minister of the Interior informed Turriff by letter that Turriff has failed to fulfill its obligations under the contract, and that the Government intended after 14 days to enter the site and to employ other contractors to carry out a large part of the work comprised in the contract with Turriff. The right of the Sudanese Government to take action was disputed by Turriff, but the Government maintained its position and in October 1963 caused other contractors to enter upon the site and commence work. Turriff, taking the view that the Government had by its letters and actions repudiated the contract, wrote to the Government on 14 October 1963, stating its views and further stating that it accepted such repudiation and terminated the contract.

Questions Submitted to Arbitration

1. Was the aforementioned contract void or voidable?

2. If the Tribunal should find that the contract was void or ought not for any reason be enforced against the Sudanese Government, then the Tribunal should determine the value of the quantity of work and services and provided materials supplied by Turriff to the Sudanese Government prior to 14 October 1963, and award any such sum to Turriff.

Decision of the Arbitral Tribunal

As noted, this dispute arose out of a contract signed by the Parties on 16 October 1962, by which Turriff agreed to build a major housing project for the Sudanese Government. Turriff's main claim was that this contract was repudiated by the Government exactly a year later, that Turriff accepted that repudiation thereby bringing the contract to an end. Turriff argued that, as a result, it was entitled to certain sums due under the contract, but unpaid as of the date of the determination, and to damages, mainly in the nature of lost profits, for the repudiation.

The Sudanese Government responded in two ways:

a. The contract was void ab initio or voidable and ought not in justice, equity or good conscience to be enforced against it. This answer is hereinafter referred to as the South African Issue. If this answer were established, Turriff would have had no claim to monies due under the contract or to damages for repudiation, but would still be entitled to reasonable remuneration for all works done and materials supplied under the supposed contract in so far as it had not already received such remuneration.

b. The contract was not repudiated by the Government, but was repudiated by Turriff, and the Government accepted such repudiation. The issue as to which Party repudiated is hereinafter referred to as the Repudiation Issue.

In addition to its main claim, Turriff made three further disputed claims:

I. For reasonable remuneration for work done after the termination of the contract under an agreement made on 24 October 1963.

II. For reasonable remuneration for work done both outside the contract and outside the above agreement.

III. For a comparatively trivial sum relating to the acquisition of quarry rights.

Turriff also claimed interest on any principal sums which may be awarded to it at 7% per annum or at such other rate as the Tribunal may determine from the dates when the relevant causes of action arose until the date of the award.

a. The South African Issue

 With regard to this issue, four allegations made by the Sudanese Government were fundamental.

1. It was the policy of the Government at all material times not to enter into contractual relationships with persons of South African nationality or with companies whose capital shares were in whole or part, directly or indirectly beneficially owned by South African persons or companies.

2. It was also the policy of the Government not to enter into contracts which were financed by South African persons or companies.

3. The Government entered into the contract in the mistaken belief that no part of Turriff's share capital was beneficially owned directly or indirectly by South African persons or companies and that no part of the finance of the contract was provided by such persons or companies.

4. Turriff at all times knew of the aforementioned positions of the Sudanese Government.

If these allegations were untrue, the South African Issue had to be decided in favor of Turriff. As the burden of proof fell upon the Sudanese Government, and as the Government did not choose to appear to support its allegations, it would have been possible to dispose of the point on the simple ground that the Government had not, and had not even attempted, to support its case. The Tribunal was, however, expressly invited to consider the matter fully and, if so satisfied, to find the Government's case not merely unproven but positively disproved.

The Tribunal accepted this invitation and, after detailed examination of the evidence before it, found that in whatever form it was put, the case of the Government on this issue was not only not proven, but positively disproved. The reasons which led the Tribunal to this conclusion are omitted in this summary, because they are sui generis and establish no principles of international law.

b. The Repudiation Issue

The Parties stipulated that some work was done under their contract and that a certain amount of money was due and paid under it between the date of the conclusion of the contract and October 1963. As previously mentioned, each Party alleged that in that month the contract was terminated by its acceptance of the repudiation of the other Party.

The solution of the dispute involved the investigation of a number of issues of both fact and law. The Tribunal held that as to the matters in dispute, Sudanese law was not materially different from English law. As to matters of fact, the Tribunal considered among others a letter dated 14 October 1963 by Turriff to the Sudanese Government, in which Turriff stated the following:

It is made clear to us by your letters of 28th August and 15 September [1963], taken together with the steps initiated by your Government for the employment of other contractors to undertake work comprised in our contract with your Government, that your Government intends no longer to be bound by that contract.

We are advised that your Government has in these circumstances committed a fundamental breach of its contract with us, and we have been obliged carefully to consider the serious, and indeed impossible, position in which we have as a result been placed. Regrettably from every point of view, one course of action is now open to us, namely to regard your Government's breach of contract as a repudiation of the contract and to exercise our right to treat the contract as rescinded. And this we hereby do. 

It therefore follows that the contract between your Government and us is now at an end. ...

There can be no possible doubt that, unless Turriff were right in its contention that the Government had itself repudiated, this letter constituted an unequivocal repudiation by Turriff. There can equally be no doubt that, it if were a repudiation by Turriff, that repudiation was subsequently accepted by the Government. Finally, there can be no doubt that, if on the date of the letter the Government had repudiated in the manner alleged, the letter was a complete and valid acceptance of that repudiation unless Turriff had in some way lost its right to treat it as a repudiation. Accordingly, the crucial matters which had to be decided on the main dispute were:

I. Had the Government repudiated in the manner alleged?

II. If so, had Turriff in any way lost its right to accept the repudiation?

Although the crucial issues can be thus simply stated, resolving the first of them involved a great number of subsidiary issues. The essential preliminary step towards a determination of these issues was an examination of the letters and conduct relief upon by Turriff as constituting a repudiation. If a repudiation had occurred the next step was to determine whether Turriff had by 14 October 1963 lost the right to accept that repudiation and bring the contract to an end.

After lengthy and careful examination of the various issues concerned and the evidence before it, the Tribunal concluded on the Repudiation Issue that Turriff's principal claim succeeded and accordingly it was entitled to any unpaid remuneration under the contract which was due on 14 October 1963 and to damages for the repudiation of the contract by the Sudanese Government.

As the Government withdrew from the Arbitration and did not seek to establish its counterclaim, there could, in any event, be no award on the counterclaim. However, the main matters alleged by the Government in its pleadings by way of defence to Turriff's claim also formed the basis of its counterclaim and, in rejecting them as defences, the Tribunal in effect also disposed of the counterclaim.

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