Articles 121 and 122 of the Turkish Commercial Code No. 6102 (“TCC”) stipules important provisions regarding the termination of agency, exclusive contractual relationships granting monopoly rights, and the compensation claims that may arise in such cases. The decision of the 11th Civil Chamber of the Court of Cassation dated 30.04.2024 and numbered E.2023/5913, K.2024/3419 (“Decision”) provides an important perspective on how these issues should be handled in practice. The Decision, on the one hand, emphasizes the freedom of the parties regarding termination in line with the principle of freedom of contract, and on the other hand, it points out that this right can be limited within the framework of the rules of good faith.
1- Legal Framework on Portfolio Compensation
Article 122/3 of the TCC regulates two situations where the agent may not claim compensation. Accordingly;
i- If the agent has terminated the agreement without any act justifying the termination; or
ii- If the contract is terminated by the principal for just cause due to the fault of the agent, the agent cannot claim portfolio compensation.
This Article is an important element of balance considering the nature of the contract that creates a continuous business relationship and the interdependence of the parties.
On the other hand, pursuant to Art. 122/4 of the TCC, the portfolio compensation claim cannot be waived in advance. Therefore, any prior agreement not to pay the portfolio compensation shall be null and void. This regulation is intended to eliminate the inequalities between the economic power of the parties and to protect the economic interests of the agency.
2- The Rule of Good Faith
Pursuant to Article 2 of the Turkish Civil Code No. 4721, everyone is obliged to comply with the rules of honesty when exercising their rights and fulfilling their obligations. This general principle also applies to the parties who exercise their contractual right of termination.
Pursuant to Article 121/1 of the TCC, an agency agreement concluded for an indefinite period of time may be terminated by either party by giving the other party a notice period of 3 months. Furthermore, even if the agreement is concluded for a certain period of time, it may be terminated at any time for justified reasons. Article 121/4 of the TCC regulates the compensation of the damages incurred by the other party due to the non-completion of the works started, in the event that the right of termination is exercised without just cause or the 3-month termination notice period is not complied with.
In the relevant Decision, the Court stated that even if the unilateral right of termination without cause is clearly stipulated in the contract, it is obligatory to evaluate whether there is a violation of the rule of good faith in the use of this right.
3- Evaluation of the Court of Appeal
In the Decision of the 11th Civil Chamber of the Court of Appeal, an important evaluation has been made regarding the application of the good faith rule in the termination of the agency agreement. The Decision, on the one hand, states that the parties to the contract
While emphasizing the freedom of termination in line with the principle of freedom, on the other hand, it points out that this right may be limited within the framework of the rules of good faith.
In the subject case, the Defendant company terminated the agency agreement by giving thirty days to the Plaintiff, its agent, pursuant to the right of termination without cause granted to it in the agreement. However, the Plaintiff agent claimed for loss of profit and portfolio compensation, since the termination right was not based on any just cause. In its reply petition, the Defendant company argued that the agency agreement was terminated for just cause due to the Plaintiff's breach of the agreement, that there was a right to unilaterally terminate the agreement at any time in the agreement, and moreover, that the Defendant waived all compensation receivables with the agreement and requested the dismissal of the lawsuit.
Although the court of first instance found the objections of the Defendant justified and decided to dismiss the lawsuit, the General Assembly of the Court of Cassation decided to overturn the decision of the court of first instance by stating that the defendant should use this right within the framework of the rule of honesty, even if the defendant was granted the right to unilaterally terminate the contract. Subsequently, in the decision rendered by complying with the reversal decision, the General Assembly of Civil Chambers evaluated the agent's claim for portfolio compensation and loss of loss on the grounds that the Defendant could not prove that the Defendant had a just cause for exercising its right of termination and that the contract was terminated unfairly by the Defendant. In this respect;
- In terms of portfolio compensation, the claim was rejected merely on the grounds that it was not possible to access the information requested by the Claimant in the expert report and the proposed calculation method was not appropriate.
- In terms of compensation for loss of profit; the Court found the Claimant's claim justified and decided to collect 93.646,00 TL compensation for loss of profit from the Defendant.
As a result, despite the Claimant's allegations that the justification is insufficient in terms of portfolio compensation, it is understood that the Court expects the Claimant to present a more appropriate calculation method in accordance with the principle of ‘adherence to the claim’.
4- Conclusion and Evaluation
This Decision clearly demonstrates the limiting effect of the rule of good faith in the exercise of the right of termination under the provisions of the Turkish Commercial Code. In particular, it shows that in agency, exclusive distributorship, and similar contractual relationships granting monopoly rights, which are subject to special regulations under the TCC, even if the right of unilateral and unjustified termination is recognized, the compliance of the termination with the good faith rule may be subject to discussion. This situation is important in order to prevent the claims of the agent or other related parties with monopoly rights for portfolio compensation and loss of profit after termination. Therefore, while drafting the provisions regulating the right of termination in permanent contractual relationships granting monopoly rights, such as agency or distributorship agreement, the special provisions of the TCC should be taken into consideration and the compliance of these provisions with the good faith rule should be observed.