Turkey: Exclusive Distributor’s Right To Indemnity For Clientele (Termination Compensation) Under Turkish Law

Article by Ömer Faruk Tütüncüoğlu^1*

1-) Introduction

In this article, I will examine the exclusive distributorship agreements and distributor's termination compensation (also known as, indemnity for clientele, portfolio indemnification, goodwill indemnity/compensation or counterbalancing demand)² by considering similar agreements according to the recent Turkish Commercial Code (DTCC) and also by taking the concerning provisions of the Draft Turkish Commercial Code into account.

Exclusive Distributorship Agreements have been a part of commercial life in Turkey and throughout the world for a long time, albeit it is surprising to see that even in major law systems like German and Swiss Law³ , the sui generis economical relationships emanating from these types of agreements moulded by legal doctrine and case law rather than legislative bodies.⁴

Due to being a part of Continental European Law System and adopting the German approach to legal matters especially in the field of Commercial Law, the situation is the same for Turkish Law as well.

Although the Turkish Civil and Commercial Codes regulate some marketing agreements (such as commercial agent and commission merchant), exclusive distribution agreements do not have statutory discipline in Turkey. ⁵

Under actual Turkish Commercial Code no provision or no statute has been enacted as yet to handle the legal matters of said agreements, in particular the issue of distributor's claim for indemnity after termination of the contract. This picture, however, seems to be changed by article 122 of DTCC in the near future.

2-) Qualification and Usage

In its "doric simplicity", a distribution agreement may be described as a framework agreement by which a dealer (the distributor) is granted an exclusive right within a designated territory to distribute (to sell, to promote) a manufacturer's (the supplier's) products in distributor's own name and for distributor's own account on a regular basis.⁶

Due to the lack of statutory guidance, the juridical qualification of an exclusive distribution agreement under Turkish law can be difficult and, de facto, must be carried out on a case-by-case basis.

That is why, regarding distribution agreements, the principles of freedom to contract and of reasonableness and fairness that both apply to the conclusion and the performance of contracts are of importance.⁷

Besides, Article 134 of the Turkish Commercial Code (TCC) is analogously applied to distributors if certain requirements are met. Therefore, after termination of the distribution agreement, the distributor acquires a claim for an indemnification, on condition that the relationship with the manufacturer indicates continual character and further requirements are satisfied, i.e. the payment of indemnity is just and equitable having regard to all the circumstances.⁸

The 11th Chamber of Turkish Court of Appeal has especially developed such case law approach in relation to portfolio indemnification via its decision in 2002.⁹

With its decision, it enshrined that the exclusive distributor is entitled to a portfolio indemnification because the rule of fairness. lang="TR">

Thereby, Turkish Court of Appeal has paved the way for portfolio indemnification after termination of exclusive distributorship agreements in Turkish Law and as a result, with the effect of the directive of EU consisting similar provisions¹⁰ as well, the Draft Turkish Commercial Code has now a specific article concerning such matter with the title of "Balancing Demand".

In terms of distribution agreements, especially the fifth paragraph of the article is crucial¹¹. It reads, the provisions of the article shall apply to exclusive distributor agreements and other continual contracts on condition that granting the indemnification is not against good faith. By means of said provision, it has been indicated that there is no difference between a commercial agent and an exclusive distributor or the other distributors with regard to portfolio indemnification.¹²

Moreover, the Draft TCC deviates from German and Swiss Law by stating that the provision concerning the portfolio indemnification will apply to exclusive distributorship agreements and other continual contracts not analogously but directly.¹³

3-) REQUIREMENTS FOR PORTFOLIO INDEMNIFICATION

The distributor acquires an indemnification claim at the end of the agreement if certain requirements are met.¹⁴

A. TERMINATION OF THE AGREEMENT:

The agreement between the distributor and the supplier must have come to an end. It is fundamentally insignificant how the termination took place. ¹⁵

Nevertheless, under certain circumstances the distributor is not entitled to an indemnification if, i.e. the agreement is terminated due to his own faulty conduct.

Usual termination reasons are termination by the supplier, expiration of a fixed term, and termination with notice by each party.

B. SUBSTANTIAL AND ONGOING BENEFIT OF THE SUPPLIER

Another requirement is that the distributor must generate new customers for the supplier's business, or he must substantially increase the extent of business with already existing customers.¹⁶

Besides, the supplier must have substantial benefits after termination, from the new customers which the distributor acquired for the supplier during the term of the agreement.¹⁷

Said benefits include ongoing business dealings with such customers which have a substantial and favourable impact on the supplier's earnings.

C. DETRIMENT TO THE DISTRIBUTOR

On the other hand, the distributor must suffer from certain losses as a result of the termination. When the contract ends, in terms of new customers, the distributor must be deprived of profit which he would have otherwise received, as a result of concluded business sales, or as a result of probable future sales.¹⁸

D. FAIRNESS

Having regard to all the circumstances, the payment of indemnity must be just and equitable.

In addition to proving benefit to the supplier and detriment to himself, the distributor is obliged to show that the payment of an indemnity would be just and fair.¹⁹

The question whether the fairness requirement has been met, is needed to be determined by the courts on a case by case basis.

The fairness requirement plays a significant role on determining whether the distributor is entitled to acquire an indemnity, and besides, the calculation of such indemnity is to be effected by the fairness and equity of the surrounding circumstances.²⁰

4-) CALCULATION OF THE INDEMNITY

The maximum indemnity payable is the average yearly profit gained by the distributor over the past five years. If the term of the distribution agreement is less than five years, the average yearly profit of such shorter period will be used as the maximum. The gross profit (before deduction of taxes) is used to determine the maximum figure.²¹

5-) ASSERTION OF THE DEMAND

The demand must be asserted no later than one year after termination. It may be asserted orally or in writing, for there are no form requisites concerning thereto.²²

Additionally, it has to be kept in mind that the payment of the indemnity does not deprive the distributor from claiming compensation for damages based on other causes of action.

Footnotes

*LL.M. (Essex) – Attorney at Law - The author can be contacted a lang="TR">t o.faruktutuncuoglu@togaoksuz.av.tr

2. İşgüzar, Hasan: Tek Satıcılık Sözleşmesi, Ankara 1989, P: 160; Poroy, Reha/Yasaman, Hamdi; Ticarî İşletme Hukuku, İstanbul 2004, P: 230; Demir Gökyayla, Cemile: Milletlerarası Özel Hukukta Tek Satıcılık Sözleşmeleri, Ankara 2005, P:236; Karayalçın, Yaşar; Ticaret Hukuku, I, Giriş – Ticari İşletme, Ankara 1968, P: 534; Erdem, Ercüment; Tek Satıcılık Sözleşmesinde Denkleştirme Talebi, Bilgi Toplumunda Hukuk, Ünal Tekinalp'a Armağan, İstanbul 2003, P: 93; Ayhan, Rıza; Ticari İşletme Hukuku, Ankara 2007, P: 660

3. Altınok-Ormancı, Pınar; Goodwill Indemnity in an Exclusive Distributorship Agreement Evaluation of the Swiss Federal Court Decision in Case ATF 134 III 497 of 2008 P:.452-455

4. İşgüzar, Hasan; Tek satıcılık sözleşmesi Ankara 1989, P:160-177

5. Demir Gökyayla, Cemile: Milletlerarası Özel Hukukta Tek Satıcılık Sözleşmeleri, Ankara 2005, P:32

6. Ibid

7. İşgüzar, Hasan; Tek satıcılık sözleşmesi Ankara 1989, P.160-177

8. Demir Gökyayla, Cemile: Milletlerarası Özel Hukukta Tek Satıcılık Sözleşmeleri, Ankara 2005, P:260

9. Court of Appeal's Judgment, dated 4.5.2000 and the decision no E.1999/7724, K.2000/3470

10. Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents

11. TDCC (http://www.kgm.adalet.gov.tr/tbmmgk/ttk.pdf ).

12. Karasu, Rauf ; An Agent's Claim for Compensation according to the Turkish Commercial Code and the Draft Turkish Commercial Code; AUHF-2008-57-04 P:283-318

13. Ibid P:283-318

14. Demir Gökyayla, Cemile: Milletlerarası Özel Hukukta Tek Satıcılık Sözleşmeleri, Ankara 2005, P:253; Ertabak, Ünal; Tek Satıcının Müşteri Tazminatı Talebi, İstanbul 2009, P.13

15. Demir Gökyayla, Cemile: Milletlerarası Özel Hukukta Tek Satıcılık Sözleşmeleri, Ankara 2005, P:253

16. Ibid P: 253-271

17. Ibid P: 253-271

18. Ibid P: Ertabak, Ünal; Tek Satıcının Müşteri Tazminatı Talebi, İstanbul 2009, P.57

19. Ibid P: Ertabak, Ünal; Tek Satıcının Müşteri Tazminatı Talebi, İstanbul 2009, P.59

20. Karasu, Rauf ; An Agent's Claim for Compensation according to the Turkish Commercial Code and the Draft Turkish Commercial Code; AUHF-2008-57-04 P:283-318

21. Ibid lang="TR">P: 283-318; Demir Gökyayla, Cemile: Milletlerarası Özel Hukukta Tek Satıcılık Sözleşmeleri, Ankara 2005, P:253-271

22. Ibid, P:253-271

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.