Introduction
In accordance with both the clear provision of the law and the accepted and well-known definition in the doctrine; agents are natural persons or companies whose field of activity is to act as an intermediary in contracts concerning a commercial enterprise or to perform them on behalf of that enterprise, without having a specific title such as commercial representative, commercial attorney, sales officer, or employee, on the basis of a contract, in a certain region or place, on a permanent basis, or real persons or companies whose field of activity is this. Agents, who are a kind of independent merchant assistant, as can be understood from the aforementioned definition, can mediate contracts for the business they are the agent of in a legal position and in a contractual relationship that is not affiliated with the business they act as an agent, or they can make contracts directly on behalf and account of the business they are the agent of. On the other hand, the agents shall be entitled to a fee in return for the efforts they have made for the contracts they have mediated or made on behalf and account of the business they are the agent of.
Without any doubt, the agency relationship is established by a contract between the parties. However, there is no consensus in the doctrine on the legal nature of this contract. According to one opinion, although it is argued that the agency agreement is a sui generis contract, according to the majority opinion, the agency relationship should be accepted as a type of contract for works and services. However, this view also has its own sub-sections, and according to some authors, the agency agreement is interpreted closer to the service relationship, but in our opinion, taking into account the circumstances such as the continuity of the agency agreement and the independent legal position of the agent, the view that the agency agreement is closer to the attorneyship relation is more accurate. Indeed, the legislator will have adopted this view, as some provisions of the Turkish Commercial Code No. 6102 regulating agency have referred to the provisions of the Turkish Code of Obligations No. 6098 regarding the attorneyship relation. In fact, in many provisions, the business entity, which is the agent, is directly referred to as the ''client''.
In Turkish law, the details regarding the agency institution are regulated in Articles 102 et seq. of the Turkish Commercial Code No. 6102. Some of the main features that distinguish the agency from other merchant assistance institutions are the continuity of the agency agreement, the fact that the agency has an independent legal position from the enterprise of which the agency is the agent, the intermediation of contracts to be established with third parties on matters concerning the enterprise of which the agency is the agent, or the ability to make contracts on behalf and account of the enterprise of which the agency is the agent, and finally, the right of the parties to unilaterally terminate the agency agreement.
In this article, we will focus on another key feature that distinguishes the agency institution, namely the right of " Goodwill Indemnity" (Portfolio compensation) granted to the agent following the termination of the agency relationship. This right, as per Article 122 of the Turkish Commercial Code No. 6102, arises under certain conditions, which will be discussed in detail below.
Termination of the Agency Agreement
Since the goodwill indemnity claim will be raised following the termination of the agency agreement, it will be necessary to briefly mention how the agency relationship may be terminated before addressing the goodwill indemnity claim. A legally valid agency agreement may be terminated automatically due to the expiry of a certain period of time, death, restriction, bankruptcy and subsequent impossibility of one of the parties, as well as by the agreement of the parties or by a declaration of will such as the termination of the agreement by one of the parties.
The most important issue regarding the termination of the agency agreement is that, as mentioned above, the parties have the right to unilaterally terminate the agency agreement. The legal regulation on this matter is provided in Article 121/I of the Turkish Commercial Code No. 6102, which states as follows: "An agency agreement made for an indefinite term may be terminated by either party upon giving three months notice. Even if the agreement is made for a definite term, it may always be terminated for just cause." As is clear from the explicit wording of the law, if the agency agreement is for an indefinite term, the parties may terminate the agreement without providing any reason, by notifying the other party three months in advance. This notification must be sent via notary public, registered letter, telegram or Registered Electronic Mail system using secure electronic signature in accordance with Article 18/III of the Turkish Commercial Code No. 6102.
For fixed-term agency agreements, it is clear that the agreement will terminate with the expiration of the term, and any termination before the term ends must be based on just cause. Additionally, a situation commonly encountered in practice is that, despite the expiration of the term of a fixed-term agency agreement, the agency relationship may continue without a new agreement or an explicit extension of the term. In such cases, although this issue caused various debates in legal doctrine during the period of the repealed law, the new law has clarified this matter by stating: "If an agency agreement made for a fixed term continues to be applied after the expiration of the term, the agreement shall become an agreement for an indefinite term." Naturally, in a fixed-term agency agreement, if the contractual relationship continues after the expiration of the term, as described above, pursuant to Article 121/I of the Turkish Commercial Code No. 6102, either party may unilaterally terminate the agreement, provided they give three months' notice to the other party.
Definition and Legal Nature of the Claim of Goodwill Indemnity
The definition of the goodwill indemnity (or portfolio compensation, portfolio fund, customer compensation), which is frequently used in the jurisprudence of the Court of Cassation, is: after the termination of the agency agreement, it is the compensation suffered by the principal due to the fact that the client continues to benefit from the customer circle created by the agent through personal efforts during the continuation of this relationship, and the agent does not benefit from it.
Under the repealed Turkish Commercial Code No. 6762, there was no explicit legal provision regarding the agent's claim for the goodwill indemnity. However, this issue was addressed through the case law that developed based on Article 134 of the repealed Turkish Commercial Code, which stated: "The party terminating the contract without just cause and without adhering to the three-month notice period shall be liable for compensating the other party for the damage caused by the incomplete execution of the commenced work." Based on this provision, case law recognized the agent's right to compensation. Subsequently, with the enactment of Article 122 of the new Turkish Commercial Code No. 6102, the long-standing judicial practice was codified, thereby providing a clear legal basis for the agent's right to claim goodwill indemnity.
The recognition of the right to claim goodwill indemnity, within the framework of certain conditions to be detailed below, can be attributed to several underlying reasons. However, the primary reasons for this right's recognition can be said to stem from ensuring the proper balance of fees in the agreement and compensating for the economic value of the customer base created during the agency relationship, which is transferred to the principal. It can be argued that the granting of the right to claim goodwill indemnity is largely based on the principle of equity. Additionally, it can be said that agents acting as distributors for foreign companies operating in Turkey are also protected through the provision for a goodwill indemnity.
The legal nature of the goodwill indemnity claim, particularly whether it constitutes a form of compensation technically, has been the subject of extensive debate in legal doctrine. The prevailing view is that the goodwill indemnity claim is not a form of compensation technically, but rather a claim for equivalent. In our opinion, it is not possible to characterise the goodwill indemnity as a type of a compensation in the legal sense. This is because compensation can be defined as the obligation to pay the damage caused by one's own negligence as a result of a wrongful or unlawful act of another person, and there is no need for an agent to claim godwill indemnity following the termination of the contractual relationship for the wrongful and/or negligent act of his client. In other words, no negligence is required for the assertion of a goodwill indemnity claim. As we will discuss in detail below, when the express provision of the law regarding the conditions of the godwill indemnity is examined, it is not necessary for the agent to terminate the contract unfairly in order to claim godwill indemnity. Even if a client, who has not committed any wrongful and/or negligent act, has duly terminated the contract based on the right of termination provided in Article 121/I of the Turkish Commercial Code No. 6102, as explained above, with the condition of giving three months' notice, the agent will be able to claim equalisation. In fact, it is accepted that the agent may claim goodwill indemnity even in the event of termination of the contract due to the death or bankruptcy of the agent.
Additionally, it is important to emphasize that the right to claim compensation arising from a breach of contract by one of the parties, as provided under the general provisions of the law of obligations, is a separate and distinct claim from the goodwill indemnity (portfolio compensation). These two different rights should not be confused.
There are also opposing views in legal doctrine regarding the legal nature of the goodwill indemnity, with one view arguing that the goodwill indemnity is not a "set-off" (offsetting) procedure following the termination of the agency agreement. It is argued that the loss resulting from the termination of the agreement is rectified through the goodwill indemnity, and thus, the goodwill indemnity should be considered as a form of a technical compensation. Furthermore, it is suggested that the heading of the relevant provision in the law should be amended to "claim of compensation". This is because, although the content of the Article refers to the amount to be claimed by the agent from the client as "compensation".
Furthermore, while regulating the right to request goodwill indemnity, in the last paragraph of Article 122 of the Turkish Commercial Code No. 6102, stipulated that the right to request goodwill indemnity may also be applied to sole dealers and other similar permanent contractual relationships granting a monopoly right, in addition to agencies, by including the following provision: 'This provision shall also be applied in the event of the termination of sole dealership and other similar permanent contractual relationships granting a monopoly right, unless it is contrary to equity.' Thus, sole dealers or similar merchants with permanent monopoly rights may also benefit from the right to demand equalisation, as long as it is in accordance with equity and the conditions for demanding equalisation are fulfilled, which will be explained in detail below.
Conditions for the Goodwill Indemnity
The first paragraph of Article 122 titled 'Equalisation request' of the Turkish Commercial Code No. 6102 is as follows :
"After the termination of the contractual relationship;
- a) If the client obtains significant benefits after the termination of the contractual relationship, thanks to the new customers found by the agent,
- b) the agent, as a result of the termination of the contractual relationship, loses the right to demand the remuneration that he would have obtained if the contractual relationship had continued for the works performed or to be performed within a short period of time with the customers brought into the business by him; and
- c) When the characteristics and conditions of the concrete case are evaluated, the agent may request an appropriate compensation from the client, if the payment of such compensation is in accordance with equity.'
In addition, the third paragraph of the same article reads as follows: "If the agent has terminated the contract without a justifiable cause or if the client has terminated the contract with just cause due to the agent's fault, the agent may not claim compensation."
As can be understood from the above-mentioned clear provisions of the law, in order for the agent to claim a goodwill indemnity in Turkish law: I. The client must continue to benefit significantly from the customers introduced by the agent during the course of the contract, II. The agent must suffer a financial loss as a result of the termination of the contract, III. The payment of compensation to the agent must be equitable, IV. The agency agreement must not have ended due to the unjust termination by the agent or the lawful termination by the client due to the agent's fault.
In order for the agent to make an goodwill indemnity claim, the above-mentioned conditions must cumulatively come together. In other words, the aforementioned conditions must be present together in the case of the concrete event.
Calculation of the Goodwill Indemnity
Once all the above-mentioned conditions are met, it will be decided to pay the indemnity to the agent by the client. When the dispute between the parties is referred to the judiciary, the judge will have the commercial books and records of the parties examined by experts and reports will be obtained. As a result of these examinations, it will be necessary to check whether the above-mentioned conditions are met, and the calculation of the indemnity to be paid will be ensured.
However, some limits are imposed by law on the calculation of the indemnity amount. Accordingly, the amount to be determined shall not exceed the average of the annual commission or other payments received by the agent as a result of the last five years of activity. In addition, if the contractual relationship has continued for a shorter period of time, the average during the continuation of the activity shall be taken as basis.
Although there are suggestions regarding various calculation methods in the doctrine, judicial decisions are generally based on a very clear and simple calculation method. In the judicial decisions, after determining that the conditions and elements of the goodwill indemnity are found in the concrete case, the average of the annual commissions or other payments received by the agency as a result of its activities for the last five years is calculated. Then, the amount of indemnity to be decided is reached by making equitable deductions, if applicable.
Non-waivability of the Goodwill Indemnity
Pursuant to the fourth paragraph of Article 122 of the Turkish Commercial Code No. 6102, it has been decided that the right to claim the goodwill indemnity cannot be waived in advance, and as can be understood from the express provision of the law, the legislator has prohibited the agent from waiving this right before the termination of the contract (i.e. when the right to claim indemnity has not yet arisen) by means of a provision inserted in the contract in advance or through another agreement made after the contract, with a mandatory provision. As a matter of fact, according to the established jurisprudence of the Court of Cassation, the agreements made before the termination of the contract in order to waive the goodwill indemnity claim are not accepted as valid.
Moreover, in the reasoning of the law, it is stated that the parties, before the conclusion of the agency agreement, conclude a 'secret agreement' and 'condition the conclusion of the agency agreement on the condition that the agent will later waive the right to claim goodwill indemnity', which constitutes a violation of the provision of the law.
Time Limit for Filing a Compensation Claim
Additionally, the fourth paragraph of Article 122 of the Turkish Commercial Code No. 6102, in its second sentence, provides: "The right to request compensation must be asserted within one year from the termination of the contractual relationship." This establishes a one (1) year period for the agent to file a indemnity claim. There is debate in the doctrine regarding the legal nature of this period. Some views assert that the one-year period is a limitation period, while others consider it a preclusive period. However, considering that the purpose of the goodwill indemnity claim is to provide the agent with indemnifiction for what they have been deprived of, based on equity and at the agent's request, it is more accurate to regard this period as a preclusive period.
It is important to note that the preclusive period in the aforementioned statutory provision applies only to the goodwill indemnity (portfolio compensation) claim. It should not apply to other claims arising from the agency agreement. In practice, claims for other damages, such as the loss of profits or commission claims resulting from the unjust termination of the agency agreement, are often asserted in the same case as the goodwill indemnity (portfolio compensation) claim. In this case, consistent with the established case law of the Court of Cassation, the one (1) year preclusive period will apply only to the compensation (portfolio compensation) claim, and not to other claims arising from the contractual relationship, which may still be subject to the five (5) year limitation period under Article 147 of the Turkish Code of Obligations.
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.
