Portfolio Compensation under Turkish Law
PORTFOLIO COMPENSATION UNDER TURKISH LAW
When two parties are in a commercial agency (e.g. brokers, exclusive distributors and the like) relationship it is evident that the commercial agent, provided that its endeavours to promote the services and/or products of its client are successful, contributes much to the market presence of its client within the market within which it operates for its client. When such relationship is terminated, it is usually the case that the customers who have got acquainted with the services and/or products of the client will continue to work with the client, provided that the said services and/or products satisfy their expectations both in terms of quality and price, except this the commercial agent will be pulled out of the equitation. When that happens, Turkish law recognises the contribution that the commercial agent provides to its client and articulates payment of a portfolio compensation to the commercial agent—it must be noted, however, this is not a “compensation” in the technical context, but it is more like a sort of offsetting the fact that the client is going to work with those customers who was brought in by the commercial agent—provided that statutory conditions have been satisfied.
This practice note will briefly look at the conditions of portfolio compensation, which have been laid down in Turkish Commercial Code (“TCC”) Art. 122 to give a gist of when it is applicable. It must be noted, however, the question of whether portfolio compensation is payable involves questions of fact and every factual matrix of fact requires evaluation. Therefore, the present author warns those who are interested not to draw specific conclusions with respect to their circumstances.
The Contractual Relationship must be Terminated
In order for the commercial agent to claim portfolio compensation, the contractual relationship between the commercial agent and the client must be terminated. If the contract is terminated by one of the parties, such termination should not be resulting from the commercial agent’s negligent or faulty actions. Put another way, if the client has terminated the contract, the termination should not be legitimate and if the commercial agent has terminated the contract, the termination should be legitimate. Quite clearly, determining when such termination is “legitimate” is not hard science and a degree of discretion will be involved in such determination. At least, it might be said that trivial problems and setbacks would not suffice for a court to opine that there were reasons justifying such termination with cause.
The Commercial Agent should have Provided New Customers which will Result in Substantial Benefits to the Client
As stated above, portfolio compensation can be seen as an offset of the fact that the client will continue to profit from the clients which have been brought by the commercial agent, yet the commercial agent will no longer receive any commission whatsoever. Therefore, it goes without saying that the client is going to receive some benefit arising out of the commercial agent’s operation.
Causal Nexus between the Termination and the Commercial Agents Loss of Profits
The commercial agents should lose its payment rights—which he would not have lost but for the termination—relating to the transactions which he has entered with or is to enter with customers which he has brought in. Therefore, to illustrate this point, if the commercial agent has been paid for the new customers, then the commercial agent will not be entitled for portfolio compensation.
Payment of Portfolio Compensation Must be “Fair”
Payment of the compensation should be regarded, after taking all particularities of the case at hand, fair. Again, this leaves a big leeway for the adjudicator to use its discretion whether an order for payment of portfolio compensation would be fair. It is apparent that defining when and how such payment would be fair is a futile attempt. The factors which may be taken into account of when deciding whether such payment is fair are numerous and therefore, one should not jump to certain conclusions before evaluating all factors.
Cap for the Compensation
The portfolio compensation cannot exceed the average of the yearly commission paid to the commercial agent for the past 5 years. If the contractual relationship has lasted less than 5 years, then the average will be calculated based on the actual time for which the relationship has continued.
Statutes of Limitations
The claim for portfolio compensation should be launched within one year as from the date of termination of the contractual relationship. After this one year elapses, the right to claim portfolio compensation will cease to exist and, if asserted, should be rejected by the judge ex officio.