This article examines the agent's goodwill indemnity under Article 122 TCC: conditions, cap and calculation, the one-year time limit, the waiver ban and application to distributors.
For a commercial agent, the end of an agency contract often means that a customer base built over years of work stays with the principal. During the contract the agent promoted the territory, found customers and tied them to the principal. When the contract ends, the agent loses the commission those customers would have generated, while the principal continues to do business with them. Turkish law corrects this imbalance through a claim known in practice as the goodwill indemnity or portfolio compensation (portföy tazminatı or denkleştirme tazminatı). Regulated in Article 122 of the Turkish Commercial Code No. 6102 (TCC), the claim is one of the most frequently litigated aspects of agency relationships and one of the most frequently overlooked when contracts are drafted. This article examines the nature of the claim, its conditions, the statutory cap and the calculation, the cases in which no claim arises, the one-year time limit and the prohibition of advance waiver, its application to distribution and exclusive dealership agreements, and its treatment in contracts with a foreign element.
1. Nature of the Goodwill Indemnity
The goodwill indemnity is distinct from the commission the agent earns for its work during the contract. Commission is the price of transactions concluded while the contract is in force. The goodwill indemnity compensates the principal's continued benefit, after the contract has ended, from the customer base the agent created. The claim therefore does not depend on fault. What matters is not whether the principal terminated lawfully or unlawfully, but who retains the value created by the agent's work once the relationship is over.
The goodwill indemnity is also separate from damages for wrongful termination and from damages for failure to observe the notice period. Under Article 121 TCC, an agency contract concluded for an indefinite term may be terminated by either party with three months' notice. Failure to observe that period gives rise to a separate claim. Where their conditions are met, these claims may be asserted together with the goodwill indemnity.
2. Conditions of the Claim
Under Article 122(1) TCC, the agent may claim an appropriate indemnity from the principal after the contractual relationship has ended if the following three conditions are met cumulatively.
- Substantial benefit to the principal: the principal continues to derive substantial benefits after termination from new customers brought in by the agent. Turkish scholars argue that a significant increase in business with existing customers taken over by the agent should be treated in the same way.
- Loss of commission by the agent: as a result of termination, the agent loses the commission it would have earned, had the relationship continued, on transactions concluded or to be concluded shortly with the customers it brought in.
- Equity: payment of the indemnity must be equitable in light of all the circumstances, including the duration of the contract, whether the agent is bound by a post-contractual non-compete, the support the principal provided and the circumstances of termination.
The burden of proof lies with the agent. In practice the decisive evidence is a list of the customers the agent brought in during the contract and the turnover generated with them. Agents should therefore keep a running record of the customers they introduce and the commissions earned on them while the contract is still in force.
3. Statutory Cap and Calculation
Under Article 122(2) TCC, the indemnity may not exceed the average annual commission or other remuneration the agent received over the last five years of its activity. If the relationship lasted less than five years, the average over its actual duration applies.
A common mistake is to read the cap as five years' total commission. The cap is the annual average of the last five years. For an agent that earned TRY 1,600,000, 1,800,000, 2,000,000, 2,200,000 and 2,400,000 in commission over the last five years, the annual average, and therefore the cap, is TRY 2,000,000.
The cap is not the indemnity itself. The calculation is made in two steps. First, the commission the agent would have earned from the customers it brought in, had the contract continued, is projected over a reasonable period, taking into account the expected rate of customer attrition, and then reduced on equitable grounds. Second, the resulting figure is compared with the statutory cap and any excess is disallowed. Turkish courts usually carry out this calculation through court-appointed experts, so the completeness of the agent's books and commission records directly affects the amount awarded.
4. Where No Claim Arises
Article 122(3) TCC excludes the claim in two situations.
- The agent itself terminated the contract without the principal having given it just cause to do so.
- The principal terminated the contract for just cause attributable to the agent's fault.
By contrast, the claim is preserved where the contract expires, where the principal terminates with due notice, or where the agent terminates for just cause attributable to the principal. A principal's reference to the agent's fault in its termination notice is not sufficient on its own; fault and just cause must be proven on the facts. Termination correspondence should be drafted with this in mind, as it often shapes the outcome of the later indemnity dispute.
5. One-Year Time Limit and Prohibition of Advance Waiver
Under Article 122(4) TCC, the claim must be asserted within one year of the end of the contractual relationship. This period is regarded as a preclusive time limit, and missing it bars the claim on the merits. Where the termination date is disputed, the safest course is for the agent to give written notice of its claim through a notary public before the period expires.
The same paragraph provides that the right to the indemnity cannot be waived in advance. Clauses stating that "the agent shall not claim any goodwill indemnity upon termination" are therefore invalid. Arrangements that indirectly exclude the indemnity, such as clauses describing part of the commission as an advance payment of the indemnity, may be assessed in the same way. Settlements and releases concluded after the contract has ended are, however, valid; the prohibition applies only to waivers made in advance.
6. Application to Distribution and Exclusive Dealership Agreements
Article 122(5) TCC provides that the article also applies to exclusive dealership and similar continuing contractual relationships, unless this would be inequitable. Since the entry into force of the TCC No. 6102, the goodwill indemnity has therefore been a statutory claim not only for agents but also for exclusive distributors and dealers.
The claim does not, however, arise automatically in every distribution relationship. The Turkish Court of Cassation looks at criteria such as whether the distributor was integrated into the supplier's sales organisation in a manner similar to an agent, whether the distributor was obliged to transfer its customer data to the supplier on termination or the supplier otherwise obtained the practical ability to use the customer base, and whether the relationship was exclusive and long term. For a distributor that buys and sells in its own name and keeps its customer base as a value of its own business, the claim may be found to be inequitable.
The calculation must also be adapted for distributors. A distributor earns a resale margin rather than commission. Legal writing and comparative practice therefore accept that, when determining the cap, the part of the gross margin that covers the distributor's operating costs and commercial risk should be deducted to arrive at an amount equivalent to an agent's commission.
7. Contracts with a Foreign Element
Which law governs the goodwill indemnity is of particular importance where Turkish agents act for foreign manufacturers or foreign agents act for Turkish exporters. Under Article 24 of the Turkish Code on Private International and Procedural Law No. 5718, the parties may choose the law governing their contract. Absent a choice, the law most closely connected with the contract applies. For agency contracts this is, as a rule, the law of the agent's place of business as the party rendering the characteristic performance.
The choice of law can determine the fate of the claim. In EU law, Council Directive 86/653/EEC on self-employed commercial agents provides for an indemnity similar to Article 122 TCC. In its 2000 judgment in Ingmar, the Court of Justice of the European Union held that this protection is mandatory and applies where the agent carries on its activity within the Union, even if the contract is governed by the law of a third country. A Turkish exporter working with an agent active in Europe may therefore face a Directive-based indemnity claim even where the contract chooses Turkish law.
Conversely, where a foreign manufacturer's agency contract with an agent operating in Turkey is governed by foreign law, it is debated whether a Turkish court would apply Article 122 TCC as an overriding mandatory rule. Given this uncertainty, Turkish agents should negotiate the choice-of-law clause and the dispute resolution mechanism deliberately at the contracting stage. Where the contract contains an arbitration clause, the way an arbitral tribunal is likely to treat these mandatory rules should also be considered.
8. Relationship with Post-Contractual Non-Compete Clauses
Principals may wish to protect the value of the customer base by imposing a post-contractual non-compete on the agent. Under Article 123 TCC, such a restriction must be in writing, must be limited to the territory or customer group entrusted to the agent and may not exceed two years. The principal must also pay the agent appropriate compensation for the duration of the restriction. Non-compete compensation and the goodwill indemnity serve different purposes and one does not replace the other. However, the agent's inability to reach its former customers because of the restriction weighs in the agent's favour in the equity assessment of the goodwill indemnity.
9. Conclusion and Practical Recommendations
The goodwill indemnity is a claim that arises on the termination of agency and exclusive distribution relationships and cannot be excluded in advance. The key points can be summarised as follows.
- The claim requires a substantial benefit to the principal from customers brought in by the agent, a loss of commission by the agent, and that payment be equitable.
- The cap is the average annual commission of the last five years, not the five-year total.
- No claim arises where the agent terminates without just cause, or where the principal terminates for just cause attributable to the agent's fault.
- The claim must be asserted within one year of termination; notice through a notary public within that period is recommended.
- Advance waiver clauses are invalid; settlements concluded after termination are valid.
- The rule may also apply to exclusive distribution and dealership relationships; integration into the supplier's sales organisation and who keeps the customer base are decisive.
- In cross-border contracts, the choice of law and arbitration clause can determine the outcome; for agents active in Europe, Directive-based protection may apply despite a choice of Turkish law.
For principals, anticipating the goodwill risk at the drafting stage and documenting the termination process, and for agents, keeping regular records of the customers introduced and commissions earned and monitoring the one-year period, are often the steps that decide the dispute.
For advice on drafting agency, distribution and dealership agreements, goodwill indemnity claims and cross-border distribution disputes, please contact us at info@guzeloglu.legal.