Legal Journal

Goodwill Compensation Under German Law

Turkish Commercial Code No. 6102 was essentially regulated being influenced by the German and Swiss legislation. The German Commercial Code (Handelsgesetzbuch-HGB) also has the speciality of being the first commercial code in the world which makes a separate arrangement regarding the agents. Thus, on this paper, Article 89b of the German Commercial Code will be examined relating to the claims of the commercial agents upon termination of the agency contract in the light of European Union legislation.

European Union has determined minimum protection requirements with its Directive 86/653/EEC to be provided by the Member States for the agents. In this framework, the Member States were held liable to provide agents with such minimum assurances through the arrangements they will make under their domestic laws. Article 17 of the Directive sets forth the rule that in case the agency contract is terminated, goodwill compensation shall be paid to the commercial agent or the agent’s damages shall be indemnified. This Article 17 grants Member States the right to choose from these optional remedies.

On October 23, 1989, Germany has made an amendment in its Commercial Code (Code) to make the Code compatible with the Directive. As per Article 89b(1) of the Code complying with Article 17(2)(a) of European Union Directive, if the agent has provided benefits to the principal through a new customer portfolio which the agent brought or if the principal’s volume of business has increased significantly and if the principal will continue making significant gains as a result of such benefits upon termination of the contract as well, the agent shall be entitled to compensation.

As a principle, agent’s right to claim goodwill compensation is not limited to any restriction. However as per Article 89b(3) of German Commercial Code; in following cases, commercial agent cannot claim goodwill compensation if; (i)  the commercial agent has terminated the agency contract, unless the conduct of the principal gave justified grounds for doing so, or the commercial agent cannot reasonably be expected to continue his activities on account of his age or of illness, (ii) the principal has terminated the agency contract and there was a compelling reason for such termination owing to culpable conduct on part of the commercial agent, (iii) a third party enters into the agency contract in place of the commercial agent on the basis of an agreement between the principal and the commercial agent.

In addition to the regulations clearly set forth under the Code, the procedures relating to the calculation of the goodwill compensation which the agent will be entitled to claim, were determined by case-law. The most significant development and amendment in German Law in this regard, occurred as a result of the application filed by Hamburg Regional Court (Landgericht Hamburg) before European Court of Justice in 2009 and as a result of this application, Article 89b(1) of German Commercial Code was re-drafted.

During the period prior to the decision of the European Court of Justice, German Courts deemed the agent’s loss of commissions as the single factor in calculating the goodwill compensation and in order for the compensation amount to be equitable, they had a tendency to decide that it should be limited to the loss of compensation. Hamburg Regional Court’s interpretation of Article 17(2)(a) of the Directive was also the same. However, as a result of its doubts in respect of that interpretation of the Directive, Hamburg Regional Court filed an application to the European Court of Justice and asked whether limiting the amount of goodwill compensation which the commercial agent would be entitled to as a result of the termination of the contract being limited to the amount of commission lost complies with the Directive.

European Court of Justice stipulated in its Turgay Semen v. Deutsche Tamoil decision dated 06.03.2009, numbered C-348/07 that the calculation of the compensation amount should go through a three staged assessment. At the first stage, it will be quantified the benefits gained by the principal as a result of the volume of business with customers brought by commercial agent or the increased volume of business by commercial agent with currently available customers. Then at the second stage, it will be checked whether the amount established on the basis of the abovementioned criteria is equitable, having regard to all the circumstances of the case and, in particular, to the commission lost by the commercial agent. Finally at the third stage, it will be determined whether the amount calculated based on the first two criterions exceeds the average annual “remunerations” of the commercial agent it has gained as a result of its activities during the last five years.  The term “remuneration” was deliberately used instead of the term “commission”. Therefore, amount of the goodwill compensation payable to the commercial agent is deemed to be able to exceed the loss of commission incurred by agent, thus the loss of commission is not automatically accepted as an upper limit. Following this decision, Article 89b of German Commercial Code and the preamble of this article were amended and in practice, the loss of commissions became a factor to be considered in addition to other factors when calculating goodwill compensation.

It is only possible that these arrangements set forth under Article 89b of German Commercial Code may be applied by analogy to the distributor and the franchisee.

Av. Nihan Malkoçer