Distribution law in Turkey

Turkish law on Agency Agreements is set out in the Turkish Commercial Code No 6102 (“TCC”).

Are there any formal requirements on concluding Agency Agreements?

Under Turkish law, an Agency Agreement may be concluded either verbally or in writing. For evidentiary purposes, also considering the rule in Civil Procedure Law that a written document is required to prove the valid existence of a right if the disputed amount exceeds TRY 2,960 (in 2018), we recommend concluding the Agency Agreement in writing.

The Commercial Agent may exercise the following powers only if the Principal grants them in writing:

• to execute agreements on behalf of the Principal (which should be registered with the respective trade registry and announced by the Commercial Agent);
• to receive payments for goods not personally delivered by the Commercial Agent and to accept the novation or reduction of receivables arising therefrom;
• to accept delivery of goods not personally paid for by the Commercial Agent and to accept the novation or reduction of receivables arising therefrom.

Are there any specific information obligations on concluding Agency Agreements?

The Principal must inform the Commercial Agent of matters necessary for performing the Agency Agreement and in particular to inform it, if applicable, that the volume of business may be considerably lower than would be normally expected by the Commercial Agent. These information obligations may also extend to the conclusion of Agency Agreements.

Under Turkish law, there is a general obligation to answer questions correctly and to provide certain crucial information without a special request prior to entering into an agreement (doctrine of culpa in contrahendo).

Are there any specific pitfalls, which need to be borne in mind when concluding Agency Agreements?

It should be taken into account that, unless agreed otherwise in writing, the following exclusivity rules apply:

• the Principal cannot appoint multiple Commercial Agents for the same business branch at the same time and place (or region);
• the Commercial Agent cannot act on behalf of multiple Principals that compete with each other at the same time and place (or region).

Are the parties free to agree on the scope of the Commercial Agency?

The Principal and the Commercial Agent are free to agree on the scope of the Commercial Agency. In particular, the parties may commission the Commercial Agent (1) worldwide or for a certain geographic region, (2) for all or only for certain products of the Principal, (3) for all or only certain customers of the Principal.

Turkish statutory law provides for a non-compete obligation for both the Commercial Agent and the Principal during the contractual term.

What are the primary obligations of the Commercial Agent and the Principal?

In general, the Commercial Agent has the following primary obligations:

• to act for the Principal and to protect the Principal’s interests;
• to establish an organization for operations of the Principal;
• to provide the Principal with relevant information regarding the market, (potential) customers and requirements concerning the products;
• to diligently safeguard the interests of the Principal in all business respects;
• not to make a private profit;
• not to use the Principal’s working opportunities for its own purposes;
• to preserve and return the goods and documents given to the Commercial Agent;
• to observe the duty of care;
• to maintain confidentiality; and
• to adhere to the statutory non-compete obligations during the contractual term.

In general, the Principal has the following primary obligations based on statutory law:

• to provide the Commercial Agent with the relevant materials regarding the goods;
• to inform the Commercial Agent of matters necessary for performing the Agency Agreement;
• to inform it that the volume of business may be considerably lower than would be normally expected by the Commercial Agent (if applicable);
• to notify the Commercial Agent in due course on whether the acts performed by the Commercial Agent are accepted or whether the agreement concluded by the Commercial Agent will not be performed by the Principal; and
• to pay the fees the Commercial Agent is entitled to.

It is advisable to set out the obligations of the Commercial Agent and the Principal in the Agency Agreement to avoid any undesirable legal issues.

Generally, the Commercial Agent is entitled to a commission for the business it acquires from customers for the contractual term of the Agency Agreement.

The payment may be demanded in the event of:

• the business transaction was concluded as a result of the Commercial Agent’s action; i.e. was acquired by it; and
• the business transaction was concluded with customers that were assigned to the Commercial Agent (in such case even for business transactions concluded without the Commercial Agent's involvement); or
• the business transaction was concluded within a territory that was assigned to the Commercial Agent (in such case, even for transactions concluded without the Commercial Agent's involvement).

For business transactions which are concluded after the contractual term has ended, in the absence of a contractual agreement to the contrary, the Commercial Agent can claim commission if:

• the business transaction can mainly be attributed to the Commercial Agent's efforts during the contractual term and if the business transaction was entered into within a reasonable period after the end of the contractual term; or
• the customer's offer to enter into a contract with the Principal was received by the Commercial Agent or the Principal prior to the Agency Agreement's end.

In addition, the collection commission (tahsil komisyonu) may also be demanded in the event that the Commercial Agent received specific instructions from the Principal regarding the collection of the due amount from the customer.

The Commercial Agent is entitled to a fee when and to the extent that the concluded transaction is actually performed.

Unless otherwise agreed between the parties, upon the Principal’s performance of the transaction, the Commercial Agent is entitled to a reasonable advance, which may be payable on the last day of the following month. In any case, the Commercial Agent is entitled to a fee when and to the extent the customer performs the transaction. In the event that the customer cannot perform the transaction, the Commercial Agent may not claim any fee and must return the prepaid amounts. The Commercial Agent may not claim any fee in the event and to the extent that the agreement cannot be fulfilled for reasons not attributable to the Principal.

Unless agreed otherwise, the Commercial Agent’s fee shall be determined in accordance with the commercial customs of the area of the Commercial Agent or in the absence thereof, by the commercial court of first instance.

Term of the Agency Agreement

There are no statutory rules on the term of Agency Agreements. The parties are in general free to set the parameters of the contractual term, for example by agreeing on a fixed term or an indefinite term or a combination of the two.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Agency Agreement, the Agency Agreement is considered to have been tacitly renewed for an indefinite term.

Termination of the Agency Agreement

If the Agency Agreement was concluded for a fixed term, in general, the Agency Agreement may only be terminated extraordinarily for good cause. During a fixed contractual term, no termination for convenience is possible. Agency Agreements concluded for a fixed term shall automatically be terminated at the end of the term unless the parties agree on an automatic renewal.

In the event that the Agency Agreement was concluded for an indefinite term, the party that wants to terminate the agreement should notify the other party at least three (3) months prior to the effective date of any contemplated termination. In any case, any party may terminate the Agency Agreement for good cause immediately.

Other than the statutory grounds of bankruptcy, death, and loss of legal capacity, the TCC does not specifically define incidents that may constitute good cause for termination.

However, in according to the Court of Appeal decisions, the following reasons may be considered as good cause for the termination of Agency Agreements, in the event that one of the parties to the agreement:

• discontinues or must cease its activities for any reason for an unreasonable period;
• engages in any activity harming the other party, whether directly or indirectly; and
• makes late payments in spite of written notice.

In addition, the parties to an Agency Agreement may also mutually agree on other good causes, provided that such causes do not violate mandatory provisions of the law.

The notice periods may not be shortened. The notice periods may be extended by contractual agreement, provided, however, that the notice period for the Commercial Agent is at least as long as the notice period for the Principal.

Turkish statutory law provides for a written form requirement for the termination notice as an evidentiary requirement.

The indemnification claim as main consequence of the Agency Agreement's termination

According to the Court of Appeal decisions, the court may order an indemnification (the so-called portfolio compensation or goodwill payment) in the event of a termination of the Agency Agreement, irrespective of whether the three (3) months-notice is given or not.

When the Agency Agreement ends, the Commercial Agent is entitled to an indemnification claim, if:

• the Principal continues to derive benefits from the clientele formerly introduced by the Commercial Agent, after the termination of the Agency Agreement;
• the Commercial Agent has lost the right to claim compensation as per the potential agreements with clients that it might have entered into, had its agency rights not been terminated by Principal; and
• the payment of the compensation is fair and equitable considering all the circumstances of the individual case.

The amount of the Commercial Agent's indemnity is capped: it may not exceed the Commercial Agent's average annual remuneration over the preceding five (5) years (or the actual term, if it was less than five (5) years). The cap is generally used by the courts as the baseline for calculating the portfolio compensation; however, the methods of calculation may vary.

The indemnification claim is precluded, if:

• the Agency Agreement was terminated by the Principal for good cause which was attributable to the Commercial Agent;
• the Agency Agreement was terminated by the Commercial Agent (unless the termination is justified by circumstances attributable to the Principal);
• the indemnification claim was not asserted against the Principal at the latest one (1) year from the Agency Agreement's end.

The rules on the Commercial Agent's indemnification claim are mandatory and may not be contractually excluded.

Other consequences of the Agency Agreement's termination

In the absence of a contractual agreement to the contrary, Turkish law does not stipulate a post-contractual non-compete obligation of the Commercial Agent. Turkish law, however, allows a written agreement on such a post-contractual non-compete obligation of the Commercial Agent for a period of maximum two (2) years calculated from the end of the Agency Agreement. It is important to bear in mind that the Commercial Agent is entitled to a reasonable financial compensation if such post-contractual non-compete obligation has been agreed upon. The amount of the reasonable financial compensation depends on the individual case and is subject to the discretion of the adjudicating judge.

Any claim arising from an Agency Agreement is subject to a five (5) year limitation period, starting from the date that the claim becomes due and payable.

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There are no specific statutory rules for Distributors. Subject to certain requirements, Turkish law on sale agreements may apply by analogy to Distribution Agreements. Furthermore, the portfolio compensation rules regarding Agency Agreements are applicable to exclusive Distributors.

Are there any formal requirements on concluding Distribution Agreements?

Under Turkish law, a Distribution Agreement can be concluded either verbally or in writing. For evidentiary purposes, also considering the rule in Civil Procedure Law that a written document is required to prove the valid existence of a right if the disputed amount exceeds TRY 2,960 (in 2018), we recommend concluding the Distribution Agreement in writing.

Are there any specific information obligations on concluding Distribution Agreements?

Statutory law does not provide for any specific information obligations regarding Distribution Agreements.

Under Turkish law, there is a general obligation to answer questions correctly and to provide certain crucial information without a special request prior to entering into an agreement (doctrine of culpa in contrahendo).

Are there any specific pitfalls, which need to be borne in mind when concluding Distribution Agreements?

As the Distribution Agreements are not subject to specific statutory rules in Turkiye, there are no written rules regarding the governing provisions. Thus, the disputes are mainly resolved by reference to the contractual provisions.

Besides the portfolio compensation claims, disputes arise from Distribution Agreements mainly due to remaining stock after termination. Therefore, the rules that deal with what should be done with remaining stock should be drafted clearly, also taking into account the principle of good faith.

Are the parties free to agree on the scope of the Distribution Agreement?

There are statutory limits to the Principal's and the Distributor's freedom to agree on the scope of the Distribution Agreement.

Regulated by the competition regulations in Turkiye, mainly drafted based on EU regulations, the exclusivity principle can be defined as the restriction of one or both of the parties' agreement with the others for the same product line, in the same region.

The Law on the Protection of Competition No 4054 ("Competition Law") establishes the prohibitions against restrictive agreements between undertakings, decisions by associations of undertakings and concerted practices.

Vertical agreements are defined as the agreements between undertakings active at different levels of the production chain relating to the conditions under which the parties may purchase, sell or resell goods or services, such as the Distribution Agreements. As per the Group Exemption Regulation on Vertical Agreements No. 2002/2 ("Regulation No. 2002/2"), the prohibitions of the Competition Law shall not be applied to vertical agreements, as long as they fulfil the conditions of exemption indicated in the Regulation No. 2002/2.

Regulation No. 2002/2 also regulates the non-compete obligations in vertical agreements. In accordance with the regulation, in order to benefit from the exemptions to vertical agreements, non-compete obligations should not be longer than five (5) years.

Contractual provisions which require the Distributor to source 80% or more of its demand of products solely from the Principal may only be concluded for five (5) years.

The exemptions granted by the Regulation No. 2002/2 apply in the event that the market share of the supplier in the relevant market does not exceed 40%.

What are the primary obligations of the Distributor and the Principal?

In general, it is assumed that the Distributor has the following primary obligations:

• to purchase the products from the Principal;
• to increase the number of sales (duty to notify the Principal, duty to advertise, duty to stock);
• to comply with some of the instructions of the Principal; and
• to diligently safeguard the interests of the Principal in all business respects (e.g. duty to maintain confidentiality).

In general, it is assumed that the Principal has the following primary obligations:

• to adhere to the duty of loyalty to the Distributor,
• to support the Distributor with respect to the Principal's business (for example in providing brochures, etc.);
• not to make any sale within the area provided in the distributor agreement; and
• to guarantee the quality of the merchandise.

We strongly recommend setting out in the Distribution Agreement the obligations of the Distributor and the Principal. As no specific statutory law for Distributors exists, this is important to avoid disadvantages.

How is the Distributor paid?

The remuneration of the Distributor consists of the profit it generates by purchasing the Principal's products with a rebate and selling them to its customers at a higher price. The parties may, however, following the principle of freedom of contract, agree on additional remunerations such as minimum monthly payments.

Term of the Distribution Agreement

There are no statutory rules on the term of Distribution Agreements. The parties are in general free to set the parameters of the contractual term, for example by agreeing on a fixed term or an indefinite term or a combination of the two.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Distribution Agreement, the Distribution Agreement is considered to have been tacitly renewed for an indefinite term.

Termination of the Distribution Agreement

If the Distribution Agreement was concluded for a fixed term, in general, the Distribution Agreement may only be terminated extraordinarily for good cause. During a fixed contractual term, no termination for convenience is possible.

If the Distribution Agreement was concluded for an indefinite term, it may be terminated extraordinarily for good cause immediately. A Distribution Agreement with an indefinite term may be terminated for convenience by complying with a minimum notice period, which shall be determined according to the clauses of the Distribution Agreement and the principle of good faith. To stay on the safe side, a notice period of six (6) months prior to the effective date of any contemplated termination is recommended.

Turkish statutory law provides for a written form requirement for the termination notice as an evidentiary requirement.

The indemnification claim as main consequence of the Distribution Agreement's termination

The provisions of the TCC regarding indemnification claims of Commercial Agents also apply to exclusive Distribution Agreements by way of analogy. Non-exclusive Distributors are precluded from such indemnification claims.

The amount of the exclusive Distributor’s indemnity is capped: it may not exceed the Distributor's average annual profits (for the distributed goods) over the preceding five (5) years (or the actual term, if it was less than five (5) years). The cap is generally used by the courts as the baseline for calculating the portfolio compensation; however, the methods of calculation may vary.

The indemnification claim is precluded, if:

• the Distribution Agreement was terminated by the Principal for good cause which was attributable to the exclusive Distributor;
• the Distribution Agreement was terminated by the exclusive Distributor (unless the termination is justified by circumstances attributable to the Principal);
• the indemnification claim was not asserted against the Principal at the latest one (1) year from the Distribution Agreement's end.

The rules on the exclusive Distributor’s indemnification claim are mandatory and may not be contractually excluded.

Other consequences of the Distribution Agreement's termination

Statutory law does not provide for a post-contractual non-compete obligation. According to the Regulation No. 2002/2, in order to benefit from the exemptions for vertical agreements, non-compete obligations should not be longer than five (5) years.

Under certain conditions the Distributor may request that the Principal purchase back products it has in stock when the Distribution Agreement ends. To avoid discussions in this regard, the Distribution Agreement should address this matter.

Any claim arising from a Distribution Agreement is subject to a ten (10) year limitation period, starting from the date that the claim becomes due and payable.

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