Goodwill compensation is an indemnification paid by manufacturer to distributor or principal to agent after termination of distributorship/agency agreement, since the manufacturer/principle has gained certain profits from the customer portfolio provided by distributor or agent. Goodwill compensation is not yet regulated by the laws of all countries. Therefore, in some countries such compensation may be enforced directly or indirectly; or applied to limited type of agreements.
Under Turkish Law, goodwill compensation is raised as an issue in 1996 for the first time with the claim of an insurance agent regarding the loss of its commissions after termination of its agency agreement. Although, goodwill compensation is not regulated under former Turkish Commercial Code No. 6762 (which is in force at the time), Turkish Supreme Court (11th Civil Chamber) has stated in its two decisions that agents, whose agreements are terminated, should be awarded to a "fair" compensation concerning their commissions forfeited.
This special kind of compensation is first regulated under Article 23 (16) of Turkish Insurance Law in 2007:
"Insurance agent may claim compensation from insurance company, if the insurance company derives benefit owing to portfolio of insurance agent after termination of agency agreement and if it is a necessity according to equity."
Furthermore, goodwill compensation for "exclusive" dealers/distributors (or in other words "single vendors") becomes an issue before the Supreme Court in 2000. The Supreme Court recognizes a new legal concept and rules for compensation for the main dealer of a pharmaceutical company, which has been working for that company for 42 years, "after termination of its dealer agreement without a cause". According to this decision, dealer becomes entitled to claim for compensation since it introduces respondent's (principal) products to the market and causes the principal to gain new customers. After the Supreme Court's decision, the following criteria begin to be enforced while considering the entitlement to such compensation: i) agreement of the single vendor should be unjustly terminated; ii) single vendor should have exclusive authority; iii) principal should have gained new customers; iv) customer portfolio should be transferred to the principal; v) compensation should be equitably calculated. Moreover, type and termination method of the single vendor agreement and determination of fault are also important aspects for calculation of such compensation.
The New Turkish Commercial Code ("TCC") which entered into force in 2011 has clarified the discussions by including "goodwill compensation" as a legal concept, which has already been recognized by the Supreme Court and the doctrine. TCC entitles the concept as "equalization claim" and clearly regulates this special type of compensation under Article 122. TCC ends the critical discussions on "conditions for requesting such compensation" and "calculation method". According to Article 122;
- The agent shall be entitled to request an adequate compensation from the principal, if
- the principal continues to derive substantial benefits from the new customers acquired by the agent after termination of the agency agreement,
- the agent, due to the termination of the agency agreement, has lost his right to request his commission arising from the transactions performed or to be performed within a short period with the new customers acquired by the agent that he would otherwise be entitled to if the agency agreement has not been terminated, and
- the payment of this compensation is equitable having regard to all the circumstances.
We can see that, principles of goodwill compensation, which have been first determined by Turkish Insurance Law and decisions of the Supreme Court, emerge as a legal entity under Turkish Commercial Code. In addition to this, a special regulation for single vendors has also been made under Article 122 (5) of TCC; "Unless deemed inequitable, this provision shall be applicable to the termination of the exclusive distributorship agreements and other similar permanent contractual relations that provide monopoly rights".
TCC has also introduced two new criteria that prescribed for exclusive dealers/distributors that are also single vendors in requesting goodwill compensation: i) demand should not be deemed inequitable; (ii) agreement should provide monopoly rights to dealer/ distributor. TCC uses the term "provide monopoly rights" instead of the term "exclusive distributorship" which is commonly used in practice and by the doctrine.
As the criteria and conditions are clearly defined under TCC in requesting goodwill compensation, a dealer should test its situation in legal terms under such criteria before claiming goodwill compensation. A dealer/distributor which passes such test successfully may claim a compensation which is calculated from its average annual commissions and other remunerations over the preceding five years. It must be borne in mind thateach dispute/case has different characteristics; therefore calculation of this compensation may be challenging in some cases.
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.