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Exclusive Distribution Agreement Under Turkish Law

Exclusive Distribution Agreement Under Turkish Law

23 Haziran 2022

Although there is no specific definition of the exclusive distribution agreement under Turkish Law, some definitions are included in the doctrine and in some judicial decisions.

Exclusive distribution agreement is a continuous agreement that regulates the legal relations between the producer and the exclusive distributor, and according to this agreement, the producer sends all or part of his products to only one seller in order to sell them exclusively in a certain region, and in return, the exclusive distributor sends the goods subject to the agreement on his behalf, and undertakes the obligation to take action in order to increase the sales of these goods by selling it to his account.

 

ELEMENTS OF EXCLUSIVE DISTRIBUTION AGREEMENT

1. Continuity

In an exclusive distribution agreement, individual sales agreements are drawn up for certain amounts of goods between the parties in a continuous relationship.

Exclusive distribution agreement does not end with the fulfillment of these individual sales agreements, since there are rights and obligations spread over a wide period of time in the exclusive distribution agreement.

2. Acting On Its Own Behalf

Exclusive distributor is a merchant who sells the contracted goods on his own behalf and account by assuming the risk.

This feature of the agreement distinguishes the exclusive distributor from the agent acting on behalf and account of the client, and the broker acting on their own behalf but on someone else’s account.

3. Recognition of a Sales Monopoly in a Certain Territory

With an exclusive distribution agreement, the exclusive right of sale is granted to the exclusive distributor in a certain region. As a natural consequence, producer should not send goods to another seller other than the exclusive distributor in the region, and he should not sell goods directly to that region, except under special conditions.

As a result of the producer's obligation not to sell goods to other sellers in the area, it creates an obligation to third parties other than the exclusive distributor to prohibit the sale of goods of the same nature in the region.

4. Marketing, Sales and Boosting Activity

The exclusive distributor must not only meet the needs of existing customers in the region, but also take actions to increase and accelerate the sales of the producer's goods.

 

MUTUAL RIGHTS and OBLIGATIONS of the PARTIES

1. Distributor's Rights and Obligations

a) Obligation to Purchase

One of the most important and essential obligations for the exclusive distributor is the obligation to purchase goods.

Purchase obligation is a consequence of the exclusive sales right granted to the exclusive distributor.

In most cases, a minimum purchase obligation is envisaged in exclusive distribution agreements.

The exclusive distributor violates the purchasing obligation only if he does not place an order to the extent stipulated in the framework agreement. As a result, the producer has the opportunity to completely terminate the contractual relationship.

However, in some agreement types, penal clauses are used instead of the termination mechanism in case the minimum purchase amount was not met, thus balancing the interests of both parties.

b) Obligation to Take Action to Increase the Sales

Another obligation of the exclusive distributor arising from this agreement is the obligation to take action to increase sales of the goods. Despite the fact that the producer grants the exclusive distributor a monopoly of sales in the region and also refrains from selling the contracted goods in this region, either itself or through third parties, the exclusive distributor is under the obligation to operate in that region with the motive of providing as many sales as possible.

The burden of increasing the sales mainly includes having a sales place in a style and size that will meet the needs of the customer environment, employing sufficient number of qualified personnel and advertising activities.

c) Obligation to Provide Information

The scope of the exclusive distributor's obligation to provide information can be determined in the framework agreement. If this obligation is not specified in the agreement, this responsibility of the exclusive distributor should be determined according to the nature of the business. At certain times, the exclusive trader must provide information about the results of the business, about the sales results, about the estimated demand quantities and about the advertising activities carried out. However, since the exclusive distributor has an interest in keeping certain information, especially the names of its customer circle confidential, it should not be expected from the distributor to provide this information.

d) Fulfilling Customer Service

In order to ensure that customer services are performed properly, parties usually regulate this obligation in detail in the agreement. If the goods subject to the agreement are technically necessary, the manufacturer determines the type of workshop, the tools and spare parts to be used with the provisions of the agreement. In fact, the obligation to use original spare parts in repair works can be imposed on the distributor. However, it should be noted that, unless the obligation to establish a technical service is determined by the agreement, the exclusive distributor is not obliged to establish a technical service.

e) Obligation to Protect the Interests of the Producer

  • Obligation of Confidentiality

Once the exchange of information has taken place, this information should not fall into the hands of third parties, and as a result, the obligation to keep confidential arises in parallel with the mutual obligation to provide information. This obligation is actually mutual and is provided in practice or by non-disclosure clauses included in the agreement or by a confidentiality agreement made separately from the framework agreement.

  • Obligation to Non-Compete

The question of whether the exclusive distributor is subject to the non-compete is very important in the exclusive distribution agreements. Depending on the solution of this problem, the exclusive distributor may or may not sell the goods that are in competition with the goods subject to the agreement. Since there is no regulation under the law regarding the exclusive distribution agreement, this issue is usually regulated in a clear and detailed manner with the non-compete clauses in the agreements.

However, the existence of a non-compete prohibition should be accepted for situations where it is not regulated.

2. Producer's Rights and Obligations

a) Obligation to Deliver

The most important and basic obligation for the producer in the exclusive distribution agreement is the delivery of the goods, which is the subject of the agreement. Even if this obligation is not included in the agreement, it arises from the nature of the relationship. The scope of the producer's obligation to deliver should be evaluated within the framework of the principles of good faith and trust. If the non-performance of the orders is due to the fault of the producer, exclusive distributor should be able to terminate the contract without prejudice and demand compensation for the damage.

b) Obligation to Cooperate

  • Allocation of Necessary Documents and Materials to the Exclusive Distributor

Exclusive distributor should work to increase the number by carrying out advertising activities and customer service in the contract area with the care that a prudent trader should.

Producer should provide him with the necessary documentation, samples of goods to be sold, price lists, instructions for use and other necessary documents and materials to support these activities of the exclusive distributor.

  • Obligation of the Producer to Provide Information

The scope of this obligation is, first of all, matters known to the producer and affecting the exclusive distributor's activities to increase the sales.

Accordingly, the producer should share all kinds of information that will affect the model and price changes in the goods, important advertising and material changes, in short, the version of the product, with the exclusive distributor, without wasting time.

  • Obligation of Not Selling Directly or Indirectly in the Territory

As a result of the regional monopoly right of the exclusive distributor, the producer should not sell directly or indirectly in the Territory, except for exceptional cases.

Because the most important benefit of the exclusive distributor in this relationship is to be able to sell the goods in the territory without competition, this obligation is also a consequence of the non-compete prohibition imposed on the exclusive distributor. This obligation can be narrowed down with a framework agreement.

c) Producer's Right to Instruct

The producer's right to give instructions exists even if there is no such provision in the framework agreement. This right of the producer is limited by general principles. How these principles will be applied by the exclusive distributor in concrete cases is left to the exclusive distributor. Because he is a trader acting on his own behalf and account.

The producer's right to give instructions, especially the establishment of sales organization, advertising activities, maintenance and repair services and the arrangement of offices, etc. covers topics.

It is a right of the producer for the producer to instruct the exclusive distributor about the selling price of the goods, if it is contractually regulated. However, even if it is not regulated, it should be accepted that the producer has the right to give such instructions for the benefit of not selling his goods at different price ranges in different regions. Because the reputation of the producer's brand is important here, the excessive variation of the prices of the producer's goods from region to region shakes the consumer's belief in the brand.

 

TERMINATION of CONTRACT

Exclusivity is usually concluded for an indefinite period because both the producer and the exclusive distributor have an interest in it. Exclusive distributors are obliged to open and organize a sales place to sell the producer's goods as a requirement of the agreement. In addition, they cannot amortize their investments with a short-term agreement, as they have to make investments to perform customer service.

1. Contract Term Expiration

Due to this concern, in practice, provisions regarding the extension of the agreement are usually included in the content of the agreement. Accordingly, if one of the parties does not notify that he does not want to renew the agreement, the agreement is automatically extended for a certain period of time.

2. Ordinary Termination of Indefinite Term Contract

If a certain period is not determined in the exclusive distribution agreement or if the agreement is tacitly renewed although a certain period has been determined, it is deemed to be of indefinite duration. The fact that the contract period is indefinite does not mean that the parties will ultimately be bound by this agreement. If there is a regulation regarding termination in the agreement, the termination procedure will operate accordingly.

If there is no provision in the agreement, since there is no legal regulation in our law, the judge will resolve the dispute regarding the termination of the agreement in line with the principles of right and negativity. In all indefinite-term agreement, it has given the parties the opportunity to terminate the agreement with prospective effect. The notice period for termination will differ in each concrete case. Here, the judge will determine a reasonable period of time to prevent damage to both sides of the agreement by looking at the relationship between the parties. If the ordinary exercise of the right of termination by one of the parties is deemed to be an abuse of the right, the termination should be deemed invalid.

3. Termination for Just Cause

Extraordinary termination is the termination of the agreement, based on a just cause, before its term and prospectively, whether it is determined or not. The party with just cause may terminate the agreement without prejudice. Since it is not clear what the just cause is in our law, the judge will appoint it. In order to be able to talk about termination with just cause, this reason must be a weighty fact that makes the continuation of the agreement unpredictable for the parties.

Results of Termination

Due to violation of the exclusive distribution agreement under Turkish law, parties can claim compensation pursuant to Turkish Code of Obligations. Exclusive distributor, as a result of the termination of the exclusive distribution agreement, may also claim a portfolio compensation due to the loss of his customer portfolio and economic loss suffered accordingly.

 

Hürhan Sarı, LL.M.

 

 

 

BIBLIOGRAPHY

  1. Yavuz, Acar, Özen, Borçlar Hukuku Dersleri (Özel Hükümler, Beya Yayınları, 8. Baskı, İstanbul, 2010
  1. Yavuz, C., Türk Borçlar Hukuku Özel Hükümler, Beta Yayınları, İstanbul, 2014

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