Turkey: Goodwill Indemnity Of The Agent Pursuant To The Turkish Commercial Code No. 6102

In General

Turkish Commercial Code No. 61021 defines the agent as "a person who is, on a continuous basis, professionally empowered by a contract to act as an intermediary to facilitate or conclude transactions within a specific geographical area or region on behalf of that commercial enterprise, without being legally related to a commercial enterprise as a commercial representative, salesperson or an employee."

As a person conducting its activities on a continuous basis, the agent creates goodwill for its principal, reinforces its principal's relations with the customers, and introduces the trademark of the principal to the customers. Subsequent to the end of the agency relationship, the principal continues to derive benefits from the business with the new customers; however, the agent may not claim any commission as the agency agreement has terminated. This indemnity is entitled as the goodwill indemnity of the agent. The goodwill indemnity is also known as portfolio compensation or clientele indemnity. However, goodwill indemnity is not an indemnity in a usual sense2. The purpose of the goodwill indemnity is not to compensate for actual damage arising from the fault of a party, but to ensure, on an equitable basis, an agent's rights deriving from the clientele. Therefore, the fault of the principal is not a prerequisite for entitlement to goodwill indemnity3.

Turkish Commercial Code No. 67624 ("Abrogated TCC") has not provided any explicit provision regarding goodwill indemnity. A goodwill indemnity claim of an agent is based on the broad interpretation of Article 134 of the Abrogated TCC. The first paragraph of the relevant article provides that the party terminating the agency contract without complying with the three month notice period shall compensate the losses of the other party arising from the non-fulfillment of the transactions. The second paragraph sets forth that where the agency contract is terminated due to death, loss of legal capacity, or bankruptcy, a compensation calculated that is based on the remuneration that would have been paid to the agent as a result of the completion of the transactions shall be paid to the agent. Nevertheless, application of this article is not appropriate as goodwill indemnity is not considered as a real indemnity5. Article 122 of the TCC put an end to all debates by adopting a clear provision pertaining to the goodwill indemnity of the agent. This Newsletter article assesses goodwill indemnity with its conditions of application pursuant to Article 122 of the TCC.

Conditions to Claim Goodwill Indemnity

Conditions under which goodwill indemnity may be claimed are regulated under Article 122 of the TCC. These conditions are sought cumulatively.

Agency Contract Should be Terminated

Goodwill indemnity is one of the consequences arising from the termination of the agency contract. The contract may be terminated by a contracting party, or may expire automatically. In order for the agent to claim goodwill indemnity, the termination should not be the result of the fault of the agent, nor should it result due to any cause attributable to the principal.

In order to consider causes attributable to the principal, fault is not required. The following are examples for such causes; delay of payment or non-payment of the commission without any just cause, reduction of the territory, imposition of weekly reporting obligation contrary to the independency of the agent. If the agent terminated the agency contract without any reason attributable to the principal pursuant to Article 122/3 of the TCC, the latter shall not be entitled to goodwill indemnity. Since the relevant article is not a mandatory provision, the parties may agree that the agent terminating the contract without any cause attributable to the principal shall be entitled to goodwill indemnity6.

Pursuant to the same paragraph of Article 122, the agent shall not be entitled to goodwill indemnity where the principal has terminated the agency contract due to a fault of the agent.

Principal Should Continue to Derive Benefits from Business with New Customers

Another condition under which to claim goodwill indemnity is the principal's continuation to derive substantial benefits from the business with new customers that the agent has brought to the principal.

New customers mean the customers who are brought to the principal after the commencement of the agent's activity. Both the customers concluding an agreement with the principal for the first time, and the customers brought to the principal with whom the commercial relations were terminated in the past, are considered to be new customers. Customers gained by the principal prior to the agency contract, or customers brought to the principal as a result of the activity of the former agents, are not included in this definition of a new customer. Nonetheless, development of commercial relations with existing customers should be considered within this context. The burden of proof is on the agent where it should be proved that new customers have been brought to the principal7.

While determining the benefit of the principal, characteristics of the market, competition conditions in the market, possible changes in the market, and the scope and term of the relation of the principal with new customers shall be assessed as far can be done at the time of the termination of the agency contract8.

Agent Should be Deprived of the Commission

Another condition under which to claim goodwill indemnity is that the agent should be deprived of the commission due to the termination of the contract. The term "commission" does not refer to commissions that arose during the agency contract, but to commissions due under the contracts to be concluded with new customers after the termination of the agency contract. Despite the termination of the contract, if any remuneration has been paid to the agent, goodwill indemnity shall not be claimed9.

Payment of This Indemnity Should be Equitable

Within the framework of the conditions under which goodwill indemnity may be claimed, we, lastly, point out the criterion for equity. Insofar as equity may not be considered as the sole reason to be entitled to a goodwill indemnity without the fulfillment of the other conditions, upon the fulfillment of the afore-mentioned conditions, then equity shall be taken into consideration. The burden of proof is on the principal when it should be proven that the claim of goodwill indemnity is contrary to equity. In this respect, the characteristics of the case at hand, and the provisions of the agency contract, shall be taken into consideration. Similarly, while determining the amount of the indemnity, brand awareness and power shall be also considered within this scope10.

Calculation of the Indemnity

In accordance with Article 122/2 of the TCC, "The amount of the indemnity may not exceed a figure equivalent to the indemnity calculated from the agent's average annual remuneration, or other remuneration paid over the preceding five years. If the agency contract continued less than five years, the indemnity shall be calculated on the average for the period in question." The law stipulates an upper limit; however, the payable amount is not required to reach this amount. Indeed, as understood from the legislative justification of the TCC, this calculation method aims to protect the agent. It is also states that the mandatory character of the provision shall be determined as per scholars' opinions and court practices. However, legislative justification of the TCC also states that the ratio legis of the related article may enable the determination of another calculation method providing a higher amount of claim for the agent.

Claim for Goodwill Indemnity

Pursuant to Article 122/4 of the TCC, the parties may not derogate from the goodwill indemnity prior to the expiry of the agency contract. This provision aims to protect the agent. The claim for indemnity must be pursued within one year following the termination of the agency contract. In accordance with this article's legislative justification, this duration should be considered as a lapse of time11.

Application of the Provision for Similar Contracts

In principle, a goodwill indemnity claim relates to agency contracts. However, pursuant to Article 122/5 of the TCC, "Unless it is equitable, this Article shall apply to the termination of continuous contracts that grant a monopoly right, such as exclusive distribution contracts." Unlike the agent, an exclusive distributor is not a commercial auxiliary, and concludes agreements in his own name and on his own behalf. Therefore, the exclusive distributor's clientele should be returned to the supplier following the expiry of the contract12.

Conclusion

Through Article 122, the TCC brought a clear provision pertaining to the goodwill indemnity of the agent. In accordance with the conditions provided in this Article, the principal should continue to derive substantial benefits from the business with new customers that the agent has brought to the principal. Moreover, the agent should be deprived from the commission regarding transactions with the new customers. In addition, payment of goodwill indemnity should be equitable. In this case, the agent may claim an indemnity not to exceed an amount that is equivalent to an indemnity calculated from the agent's average annual remuneration, or other remunerations paid in the preceding five years. This claim must be pursued within one year following the termination of the agency contract. The parties may not derogate from the goodwill indemnity prior to the expiry of the agency contract. Unless it is equitable, provisions for the agent's right to goodwill indemnity shall apply for the termination of continuous contracts granting monopoly rights, such as exclusive distribution contracts.

Footnotes

1 Published in the Official Gazette dated 14.02.2011 and numbered 27846, and entered into force on 01.07. 2012.

2 ARKAN Sabih, Ticari İşletme Hukuku, Ankara, 2011, p. 220.

3 KAYA Arslan, Türk Ticaret Kanunu Şerhi, Acentelik, İstanbul, 2013, p.231-232.

4 Abrogated on 01.07.2012.

5 ERDEM Ercüment, Türk İsviçre Hukukunda Denkleştirme Talebi, İsviçre Borçlar Kanunu'nun İktibasının 80. Yılında İsviçre Borçlar Hukuku'nun Türk Ticaret Hukuku'na Etkileri, İstanbul, 2009, p.212.

6 ARKAN Sabih, Ticari İşletme Hukuku, Ankara, 2011, p. 224.

7 KAYA Arslan, Türk Ticaret Kanunu Şerhi, Acentelik, İstanbul, 2013, p.238.

8 ARKAN Sabih, Ticari İşletme Hukuku, Ankara, 2011, s. 222.

9 KAYA Arslan, Türk Ticaret Kanunu Şerhi, Acentelik, İstanbul, 2013, p.243.

10 KAYA Arslan, Türk Ticaret Kanunu Şerhi, Acentelik, İstanbul, 2013, p.244-246.

11 ARKAN Sabih, Ticari İşletme Hukuku, Ankara, 2011, p. 225.

12 KAYA Arslan, Türk Ticaret Kanunu Şerhi, Acentelik, İstanbul, 2013, p.261-262.

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