Compensation Rights Arising from the Termination of Agency and Sole Distributor Agreements

Compensation Rights Upon Termination

Article 122 of the TCC regulates the compensation claim of the agent. Paragraph 5 of the provision states that the same claim is also available in the event of the termination of sole distributor and other similar permanent contractual relationships granting monopoly rights unless it would be contrary to equity.

The purpose of the equalization request is to compensate the loss arising from the loss of the customer circle that the agent or sole distributor has brought to the client due to the termination of the contractual relationship, with the gain that the client will obtain by continuing to benefit from this customer portfolio.^[1] 

Various conditions must coexist for an equalization claim to be made. These are; (i) the contract must be terminated for a reason other than the fault of the agent or sole distributor; (ii) the agent or sole distributor must create a new customer circle or expand the existing customer circle; (iii) the principal must benefit from the same customer circle after the termination of the contract; and (iv) the payment must be equitable, considering the characteristics and circumstances of the concrete case.^[2]

Paragraph 2 of Article 122 of the TCC regulates the amount of the equalization claim; 

(2) Compensation cannot exceed the average of the annual commission or other payments received by the agent as a result of the last five years of activity. If the contractual relationship has continued for a shorter period, the average during the continuation of the activity shall be taken as a basis.

Paragraph 4 of the same article clearly stipulates that the right to claim equalization cannot be waived in advance. Furthermore, the right to claim equalization must be asserted within one year following the termination of the contractual relationship.

Article 122 of the TCC is directly applicable to sole distributors, not by analogy. In addition, there are dominant doctrinal opinions and many judicial decisions in Turkish law, which indicate that the compensation claim is the directly applicable rule.

It should also be noted that an offset claim is not compensation, but an equitable loss-gain offset. What is important is that the agent or sole distributor was not at fault in the termination of the contract or did not terminate the contract for an unfair reason.

Compensation, on the other hand, is a claim for damages in the event that the contract is terminated before the expiry of the term and without just cause, by the party who is damaged by the unlawful termination or who is forced to terminate the contract for just cause due to the fault of the other party. Under Turkish law, it is possible for the agent or sole distributor to claim compensation based on several different regulations.

Firstly, the agent or sole distributor may claim compensation for the damages based on Article 112 of the Turkish Code of Obligations and in accordance with the general liability conditions. According to the Article; “If the obligation is not fulfilled at all or as required, the debtor is obliged to compensate the creditor for the damage arising therefrom, unless he proves that no fault can be attributed to him.” However, this provision is too general to be considered as a directly applicable rule.

One of the compensation rights granted to the agent or sole distributor is the compensation of the damages incurred due to the non-completion of the works started. These compensation rights granted to the agent by the Turkish Commercial Code are regulated in paragraphs 4 and 5 of Article 121 of the TCC:

“(4) The party who terminates the contract without just cause or without complying with the three-month notice period is obliged to compensate the damage incurred by the other party due to the failure to complete the works started.

(5) If the agency agreement is terminated due to the death, loss of capacity, or bankruptcy of the principal or the agent, an appropriate compensation is to be determined in proportion to the amount of remuneration that should be given to the agent in case of completion of the works shall be given to the agent or to those who replace him according to the cases written in this article.”

In the presence of the conditions in these provisions, the agent may claim compensation from the principal for the works started but not completed. It is also possible to apply this provision by analogy to the sole distributor agreement. Although the application of this provision to the sole distributor agreement by analogy is accepted in judicial decisions, there is no doctrinal opinion or judicial decision that these compensation provisions in Article 121 of the TCC are accepted as directly applicable rules.  

Conclusion

Claims such as compensation and equalization may arise due to the termination of an agency or sole distributor agreement. However, the legal enforceability of these claims depends on certain conditions. Claiming compensation for wrongful termination of the contract or claiming compensation for just cause termination of the contract depends on different conditions, such as the determination of the fault of the other party. Agency and sole distributor agreements are types of contracts that bring together different elements of claims, not only in the event of justified or unjustified termination, but also in the event of the expiration of the term or the termination of the contract under the conditions, with the provision of an equalization claim that may be requested if the conditions are present. It is important to note that the existence of these claims, which are explained in general terms under Turkish law in this study, and the conditions under which they can be claimed should be evaluated specifically for each legal system, taking into account the law applicable to the contract.