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PORTFOLIO COMPENSATION AND ITS MANDATORY NATURE

Changes

The provisions regarding portfolio compensation, which had been recognized by the Turkish case law, is regulated in the New Turkish Commercial Code (Law No. 6102) (the “TCC”) under Article 122 titled “equalization claim” as an imperative provision under the law and the parties of the contract cannot agree upon otherwise.

Summary

Although it is recognized by the supreme court decisions, it was not until 2012 that “portfolio compensation” came into being in a code. Article 122 of the TCC was drafted, with analogy to the provisions of paragraph 89b of the German Commercial Code and Article 418 of the Swiss Code of Obligations.

“Portfolio" can be described as the clientele that is acquired by an agency or an exclusive seller during their operations under an exclusive/sole distributor agreement or an agency contract.

In general, portfolio compensation is applicable in agency relationships. However, that the TCC also stipulates that; unless it is against to bona fide principles, the provision regarding portfolio compensation will also be applied in the termination of similar continuous contractual relationships under which exclusive distributorship and other similar monopoly rights are granted. Turkish Court of Appeal has concluded that “exclusive distributors who extended the customer portfolio of the principal will be entitled to claim portfolio compensation due to fairness and equity (bona fide) principles”. Also, it is widely accepted by the doctrinal views that the provisions with respect to equalization claims under TCC can be applicable to other contractual relationships such as sole distributorships, exclusive franchises and exclusive dealerships etc.

The TCC rules that if the agent (or the exclusive distributor/seller as the case maybe) terminates the contract without a wrongful act on the part of the principal rendering the termination just, or if the contract has been terminated with just cause by the principal due to the agent’s fault, the agent will not be entitled to raise an equalization claim.

The agent may claim appropriate compensation upon the expiry/ termination of the contract if:

  • The Principal obtains significant interests, following the expiry/ termination of the contractual relationship, through the new clientele generated by the agent;

  • as a consequence of the expiry/termination of the contract, the agent loses its right to claim remuneration that it would earn if the contractual relationship was not terminated, in consideration of the work carried out or to be carried out in the near future with the new clientele acquired by the agent to the Principal’s portfolio; and

  • The payment of the equalization claim is deemed fair and equitable, when all aspects of the situation are taken into consideration.

Hence, in Turkish legal practice “portfolio compensation” is a monetary consideration paid by the principal to the agent subject to certain conditions due to agent’s efforts on increasing the customer portfolio of the principal in the relevant market.

As per Article 122(4) of TCC, it is not possible to waive the equalization claim in advance. Accordingly, such provision is seen as an imperative provision under the law and the parties of the contract cannot agree upon otherwise.

According to the applicable provisions of the TCC, the compensation amount may not exceed the average of the commission and other payments received by the agent as a result of last five years work. If the contract continued for less than five years, the average of the commission and other payments received by the agent during the continuation of the work will be taken as the basis. However, the legal formula represents the minimum for the compensation amount payable to the agent, and other formulas that grant the agent a greater claim may be agreed by contract.

The equalization claim must be raised within one year following the termination of the contractual relationship.

It is also noteworthy to state that the agent will be entitled to demand equalization even if the contractual relationship is ended due to non-renewal of the contract or due to an automatic termination event

Conclusion

Pursuant to the TCC, subject to certain conditions, after the end of the principal - agency relationship, the agency may claim from the principal a legal compensation called “Portfolio Compensation” which is based on the agent’s commercial contributions. TCC makes it clear that the right to claim equalization is not strictly limited to agencies. In accordance with Article 122(5), sole distributors, franchisees and brand licensees shall be able to claim equalization as well if the conditions of portfolio compensation exist. Furthermore the compensation itself and therefore the relevant provisions under the TCC are mandatory provisions that various scholars allege that the right of the agent to claim equalization and waiver of such right in advance being impossible are imperative provisions that should be applied by the courts.

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