“The Turkish Court of Appeal: The Washington State Courts have the jurisdiction over the portfolio compensation claims arising from the exclusive agency agreements.”

October 19, 2022 | NEWS 
By Gokhan Bozkurt, Mustafa Bozkurt 

The 11th Chamber of the Turkish Court of Appeal (Yargitay) upheld that if the parties agreed on the jurisdiction of a foreign court in the exclusive agency agreement, that court is competent to handle portfolio (goodwill) compensation and other claims arising from the contract.

Background

In the case held before the Istanbul 6th Commercial Court [1], the plaintiff jointly sued the Boeing Company (Boeing) and Boeing International Corporation (BIC) and sought portfolio compensation and contractual fees in the sum of $14,000,000 from both respondents. The plaintiff asserted that he was an exclusive agency of Boeing for many years, and both respondents instructed it as an agency for their commercial activities in Turkey. The plaintiff also stated that it has been doing marketing activities for 40 years on behalf of Boeing. The respondent Boeing, however, unilaterally terminated the agreement on 29.06.2017 without any cause and negligence attribution. The plaintiff stated that it played a crucial role in the respondents’ sale of 20 commercial aircraft to Turkish Airlines by the respondents. However, the parties signed a protocol to end the selling process after the termination of the agency agreement. The plaintiff, therefore, claimed that because of the unjust termination, it has the right to seek portfolio compensation from both respondents. The plaintiff also contended that it was deprived of the contractual fees it was entitled to receive. Therefore, it also has the right to demand unpaid fees under article 113(2)(3) of the Turkish Commercial Code.   

In their pleadings, the respondents argued that according to the agency agreement's jurisdiction provision, the parties authorized the Washington State Courts for any potential claims arising from the contract. The respondents also stated that the agreement was governed by the law of the State of Washington. Therefore, the respondents alleged that the court has no jurisdiction over the plaintiff's claims in the case. The respondents pointed out that the agreement, which is the subject of the case, is not an agency agreement; it is a consultancy agreement. On the other hand, contrary to the allegations, the contractual fees have been paid off to the plaintiff. The respondents conducted the selling transactions of the aircraft without the plaintiff's contribution. Therefore, the plaintiff has no right to seek portfolio compensation and other additional fees from the abovementioned transaction. The respondents said that even if the court rejects their plea to the jurisdiction, the court should apply the law of the State of Washington to resolve the issues set forth in the case.            

The plaintiff asserted that according to the mandatory rules of Turkish law, Articles 5 and 6 of the Code of Turkish International Private and Procedural Law, and Article 27 of the Turkish Code of Obligations, these agreement provisions, which the respondents indicated, are invalid. Applying these rules to the case will mean excluding from the Turkish law's implementation of the case. Therefore, it unequivocally has the right to seek the portfolio compensation, and it cannot be relinquished from this right beforehand.


Decision
 

At the end of the trial, the Istanbul 6th Commercial Court decided that the agency agreement was executed between the plaintiff and the respondent Boeing Company. The other respondent BIC is not a party to the agency agreement and has no commercial relationship with the plaintiff. Therefore, the respondent BIC has no capacity as a party in the case. Furthermore, the court stated in its judgment that the agreement and its interpretation are governed by the law of the State of Washington. More importantly, the court said that the parties agreed that the Washington State Courts have exclusive jurisdiction over the disputes that will be arisen between parties concerning the agency agreement. The court specified that the parties’ agreement on the jurisdiction of the Washington State Courts complies with Article 47 of the Code of Turkish International Private and Procedural Law, and with this agreement, the parties explicitly eliminated the Turkish Courts’ jurisdiction over the case. Based on these grounds, the court dismissed the case.

Even though the plaintiff appealed the decision, the 12th Chamber of the Istanbul Regional Court of Appeal found the grounds of the Istanbul 6th Commercial Court in accordance with the law and rejected the plaintiff’s appeal request [2].

The plaintiff also appealed the Regional Court of Appeal's decision before the 11th Chamber of the Court of Appeal. The Court of Appeal, however, upheld the decision of the Regional Court of Appeal, reasoning that the decision of the Regional Court of Appeal was in accordance with the law [3]. Thus, the Court of Appeal found the first instance court's justification for dismissing the case in place.


Takeaways

The Turkish doctrine accepts that if contracting parties try to eliminate the portfolio compensation right of the agency, choosing by another country's law or court jurisdiction or via acceptance of an arbitration clause in the agency agreement, these provisions are explicitly invalid. The Court of Appeal, however, disagrees with this opinion. The Court of Appeal stated in its various decisions that if the parties accept another court’s jurisdiction over the exclusive agency or distribution agreement, these provisions will be valid and lawful [4]. Although the Turkish doctrine has the opposite view, setting out the venue objection before the courts regarding exclusive agency or distributorship agreements is accepted by the Court of Appeal without considering that these agreement provisions will circumvent Turkish law. Therefore, the respondent parties, especially those of foreign nationality, will be able to use the venue objection as a strong defense argument in portfolio compensation cases.     
 
 
If you have any questions about the issues addressed in this article, please do not hesitate to contact us:
 
Gokhan Bozkurt
Email: [email protected]
Phone: +1 212 209 7158
 
Mustafa Bozkurt
Email: [email protected]
Phone: +90 212 214 7040
 
 
[ENDNOTES]
 
[1] 03/19/2019, 2018/579 – 2019/277
 
[2] 09/19/2019, 2019/1132 – 2019/1125
 
[3] 06/23/2021, 2019/4747 – 2021/5341

[4] The 19th Chamber of the Court of Appeal (Yargitay) 04/13/2015, 2015/3313 – 2015/5338; 05/31/2002, 2001/9668 – 2002/4187