Turkey: Consequences Of Non-Attainment Of Guaranteed Minimum Order In Agency And Distribution Contracts

Introduction

It is common that agency and distribution contracts provide a minimum order undertaking for the agent and the distributor. According to such provisions, the agent or the distributor undertakes to purchase a minimum amount of product from the principal or the supplier. Under the contract, several consequences may be attached to the failure to purchase the pre-determined minimum amount.

In principal or supplier-friendly contracts, non-attainment of the guaranteed minimum order entitles the principal or supplier to terminate the contract without a notice period, to cancel the agent's or the distributor's exclusivity, to reduce the territory allocated to the agent or the distributor, and to claim for damages. In more balanced contracts, the principal or the supplier is entitled to the same rights as the principal or supplier-friendly contracts; however, the existence of objective reasons prevents the principal or the supplier to exercise its rights that cause non-fulfilment, and which the agent or the distributor could not foresee, and for which he is not responsible. Further, a right to catch-up may be granted to the agent or the distributor in subsequent years. Finally, the agent or distributor-friendly contracts do not consider non-attainment as a breach of contract.

This Newsletter examines the conditions and consequences of compensation of damages among the consequences of non-attainment of guaranteed minimum order in agency and distribution contracts.

Compensation of Damages / Loss of Profit

An agency or the distribution contract may explicitly provide for the principal or supplier's right to claim for damages: In other words, for loss of profit. Pursuant to such provisions, the principal or the supplier is entitled to damages in the amount of its loss of profit due to the missing order in the relevant year. If the contract is silent with respect to damages, but the other consequences of non-attainment, such as termination, are expressly specified, one could argue that the parties intended to cover only the specified consequences and exclude the damages. In such a case, whether or not loss of profit may be claimed shall be determined in accordance with the applicable laws. Principals or suppliers choose to explicitly regulate their right to damages in the contract in order to prevent such possible disputes.

Another issue to be examined is the situation where the agent or the distributor was not at fault in the failure of its commitment, although damages are specified under the contract. In some jurisdictions, e.g. Turkey, the agent or the distributor will be released from liability for damages if the agent or the distributor was not at fault.

In order to avoid difficulties in evidencing the damages, and to prevent any possible disputes that may arise in relation to the calculation of the damages, it is common that the principals or the suppliers include in the contract a penalty in the amount of the missing order for the relevant year instead of compensation for damages. Accordingly, in case of failure to meet the guaranteed minimum order, the principal or the supplier would be entitled to the penalty amount determined under the contract without the need to evidence the amount of damages.

Period for which the Loss of Profit may be claimed

In considering definite term contracts, the principal or the supplier is entitled to claim for the loss of profit with respect to the time period until the end of the term of the contract. In indefinite-term contracts, it may bring such claim for the time period until the end of the following notice period for termination.

Previous Years' Loss of Profit

In the event the principal or the supplier continues to be bound by the contract, although being aware of the non-attainment, i.e. the breach of the contract, whether or not loss of profit for the past years may be claimed may differ depending on applicable laws. In such cases, facts of each specific case should be evaluated. In most cases, claiming for the previous years' loss of profit, although the contract has been active, is considered as a violation of the good faith principle, and the principal or the supplier is deemed to have waived its right to terminate the contract due to the previous years' non-attainment. In such a case, the principal or the supplier should not be able to claim for the loss of profit of the preceding years, and can claim for damages only in the amount of the profit for the period in which it terminated the contract. The Turkish Court of Cassation has rendered differing decisions on the subject.

  • Opinion of the Turkish Court of Cassation stating that the previous years' loss of profit cannot be claimed: The 19th Civil Chamber of the Court rendered a judgment in line with our above-explanations in its decisions dated 16 January 20141 and 24 April 20142 and stated that in the event of contracts containing a minimum order of commitments, including periodic performances, continuing to supply products following the end of a period without making a reservation or a notification, shall be deemed as a tacit waiver of the penalty claim pertaining to the previous period and, in such a case, the case penalty receivable may be claimed by the claimant for only the last year, and the defendant shall be liable only for such amount.
  • Opinion of the Turkish Court of Cassation stating that the provisions relating to the guaranteed minimum order cannot be applicable to any period: On the other hand, in its decision dated 16 January 20133, the Assembly of Civil Chambers of the Court approved the decision of the court of first instance rendered on the grounds that "the claimant did not file a lawsuit, although the penalty that it claimed by way of a formal notification from the defendant due to missing product purchase within the first year following 06.10.1998 in which the distribution relationship was established, was unpaid by defendant; it maintained a distribution relationship with the distributor, although the defendant did not purchase products throughout the entire following 9 years in the amount it had committed to; this situation means that the claimant tacitly waived the enforcement of the tonnage undertaking and penalty provisions regulated under Article 15 of the distribution contract; the defendant did not purchase fuel oil products from third parties during the term of the contract, and the claimant continued to supply product to the defendant, and accepted the consideration of the products without making a reservation, although the defendant never purchased fuel oil products from the claimant in the minimum amount specified under the contract; in light of these circumstances, Article 15 of the contract has been de facto removed from the contract; a nine-year lasting practice has been established so that the minimum order commitment shall not apply, and a penalty shall not be claimed," and ruled that the penalty cannot be claimed not only for the previous years but also for the last year.

    According to the Assembly of Civil Chambers, due to the long-established business relationship between the parties, the fact that a party replied to the order of the other party directly by sending the product after a time without making an acceptance declaration (de facto acceptance) within the scope of the practice until then, creates a sense of trust so that the situation will continue the same as before4. Accordingly, the Assembly states that the continuance of the commercial relationship by the parties for the contract's remaining period of nine years despite the formal notifications, sale by the defendant distributor of products in an amount below what he had committed to sell each year under the contract, and the fact that the claimant company did not respond (or remained silent) to the formal notification served by the defendant distributor, and supplied products to the defendant company throughout the term of the contract created a justified trust in the defendant distributor that the Article regulating the penalty of the distribution contract between the parties shall not be applicable, also considering that this distribution relationship lasted between the parties for the remaining term of the contract. The defendant distributor continued to purchase products from the claimant company due to such justified trust; however, it has been unexpectedly requested by the claimant company to pay the penalty following the termination of the contract. Therefore, the source of the fact that has arisen due to the agreement not to apply Article 15 of the distribution contract is a justified trust. Such trust liability is a condition of the principle of good faith. More importantly, the fact that the claimant company requests a penalty following the termination of the contract in breach of the trust it created in the defendant distributor constitutes the prohibition of contradictory behaviour, and such behaviour cannot be expected to be protected in legal terms.

    On the other hand, the principal or the supplier would have the right to terminate the contract and claim for the past years' loss of profit, if it proves that it tolerated such breach in the past year, trusting that the agent or the distributor would remedy the breach; or it notified the agent or the distributor to cure the breach, and explicitly reserved its rights arising from such breach; or the relationship became unbearable (e.g. the agent or the distributor not making any efforts to reach the targets, or making less purchases than before).
  • Opinion of the Turkish Court of Cassation stating that the previous years' loss of profit shall not be deemed to have been waived: In the decision of the 19th Civil Chamber of the Court dated 13 May 20135, the following is argued: "The fact that the claimant continued to supply products at the end of each year despite the breach of the commitment does not mean a waiver of the penalties to be applicable in case of breach of the commitment regulated under the contract. This is because there is a possibility that the distributor may fulfil its commitment in the continuing process and such a supply is a right granted to the distributor. In the specific case, it is understood that the defendant company failed to fulfil its commitment in the continuing process, including the legal proceedings, despite such right that it is entitled to." Here, as explained above, the supplier expects the distributor to fulfil its commitment in the upcoming years. It is probable that, in the distribution contract subject to the lawsuit, a right to catch-up might have be granted to the distributor in subsequent years.

No Waiver Clauses

The consequences should be evaluated also in the event that there is a "no waiver" clause under the contract. "No waiver" clauses regulate that non-exercise of the rights under a contract, in whole or in part, does not mean a waiver, and reserve such rights. If the principal or the supplier remains silent for a long period of time after the violation, it could be argued that the "no waiver" clause will not be effective, and that such clause itself was waived. General "no waiver" clauses are usually not deemed valid; however, if it is specifically regulated under the contract that non-exercise by the principal or the supplier of its right to termination in the event of non-attainment by the agent or the distributor would not constitute a waiver of such right, it is possible that such a clause will be considered valid by the courts and the previous years' loss of profit will also be awarded.

Conclusion

It is common that agency and distribution contracts provide a minimum order undertaking, and entitle the principal or supplier to terminate the contract without a notice period, to cancel the agent's or the distributor's exclusivity, to reduce the territory allocated to the agent or the distributor, and to claim damages for non-attainment. In accordance with the relevant provisions, the principal or the supplier is entitled to damages in the amount of its loss of profit due to the missing order in the relevant year.

In the event the principal or the supplier continues to be bound by the contract although being aware of the non-attainment, i.e. the breach of contract, whether or not the loss of profit for the past years may be claimed may differ depending on applicable laws. In such cases, the facts of each specific case should be evaluated. The Turkish Court of Cassation has rendered differing decisions on the subject. Claiming for the previous years' damages, although the contract has continued, is usually deemed as a violation of the good faith principle, and it is accepted that the principal or the supplier has tacitly waived its claims pertaining to the previous years' damages, and that it can request the compensation of its damages only for the period in which it terminated the contract.

Footnotes

[1] Turkish Court of Cassation 19th Civil Chamber, File No. 2013/14851, Decision No. 2014/1302, Date: 16.01.2014 (www.kazanci.com).

[2] Turkish Court of Cassation 19th Civil Chamber, File No. 2014/3953, Decision No. 2014/7865, Date: 24.04.2014 (www.kazanci.com).

[3] Turkish Court of Cassation Assembly of Civil Chambers, File No. 2012/19-670, Decision No. 2013/171, Date: 16.01.2013 (www.kazanci.com).

[4] Turkish Court of Cassation Assembly of Civil Chambers, File No. 2012/19-670, Decision No. 2013/171, Date: 16.01.2013 (www.kazanci.com) cited from Kocayusufpaşaoğlu/Hatemi/Serozan/Arpacı: Borçlar Hukuku, Genel Bölüm, Birinci Cilt, İstanbul 2008, Page: 206.

[5] Turkish Court of Cassation 19th Civil Chamber, File No. 2012/9915, Decision No. 2013/8558, Date: 13.05.2013 (www.kazanci.com).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions