New Turkish Commercial Code ("TCC") has regulated the portfolio compensation, which was formerly applied by Supreme Court decisions, under the name of Equalization Claim and defined some rules in relation to such payable amount. However, TCC or secondary legislation do not expressly define how the calculation will be made and therefore the calculation method constitutes an important issue in practice.
It is disputed by academics if the Equalization Claim defined by TCC is compensation or if it is a remuneration paid under the agreement in consideration of an act performed. While some argue that it is compensation/indemnification, some argue that it is an equalization claimed under the agreement. Although the word "indemnification" is used in TCC, when it is interpreted together with the law's preamble it should be acknowledged as a wider payment made as required by equity instead of a typical indemnification of losses and damages. Therefore the same point of view should be adopted when calculating the equalization payment.
TCC does not bring a statutory provision with regards to the amount which may be claimed by the agency/exclusive seller but defines some minimum rules. Parties, on the other hand, may always agree on an alternative model which allows an equalization payment above the threshold defined in legislation.
It is accepted that the following steps should be followed for the calculation according to minimum standards set by law1:
- Calculation of principal's benefits (prospective projection)
- Calculation of agency's losses (prospective projection)
- Determination of the amount pursuant to these losses, benefits and reasons of equity
- Upper limit audit for the equalization amount (the upper limit is set as the average amount of the remuneration during the last five years of the contract, if the contract is terminated earlier – average of such contract term)
Market practice, potential client loss ratio, post-sales services such as support, maintenance, spare parts and additional service/products sales should be taken into consideration when calculating principal benefit and agency loss. Moreover, it is accepted that a reasonable interest rate cut should be applied because the payment for upcoming years will be made as a lump-sum amount.
The calculation should be made based on net amounts, not turnover amounts and the expenses like collection expenses, delivery expenses, tax, operational and employment expenses should be deducted. It should be taken into consideration for agency loss that some of the clients would usually terminate their contract during a year term. Thus, sales income of agency at the beginning of the year and its sales income at the end of the year should be compared; the decrease in these amounts should be calculated and this client decrease ratio should be used for calculation of agency loss.
The amounts found upon this principal benefit and agency loss calculation should be audited according to rules of equity. According to specific conditions of each case (well-known brand, marketing support, non-competition liability etc) relevant discount or increase over the initially found amounts should be applied. Afterwards, upper limit control should be made according to article 122 of TCC and it should be procured that the final amount does not exceed the upper limit set by law.
Although the calculation methods have been discussed and general principles have been specified in doctrine, expert reviews in local courts do not have the required qualified features. It is observed that the expert reviews do not follow the recommended calculation methods; the agency claim is interpreted more of a profit loss claim instead of principal benefit – agency loss equalization, case-specific issues are not discussed and the rules of equity are not applied. Understanding the legal nature of equalization claim properly and specifying the calculation method based on this understanding become more of an issue for proper enforcement of law.
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