10. Nov 22

Commercial agent’s claim for compensatory adjustment

If a commercial agency agreement is terminated, the commercial agent is normally entitled to compensatory adjustment. But certain conditions must be met if the claim is to be successful.

Section 89(b) of the German Commercial Code (HGB) stipulates that the commercial agent is entitled to demand a reasonable indemnity after termination of the agency agreement. We at the commercial law firm MTR Rechtsanwälte note, however, that this is conditional on the principal continuing to derive substantial benefits from business relations with new clients that were solicited by the commercial agent. Additionally, the agency agreement needs to have been terminated by the principal.

Whether and to what extent any claim for compensatory adjustment exists is a common point of contention between the parties following the termination of the agency agreement. The basis for any such claim is the business relations with clients that were established by the commercial agent, or business relationships with existing clients that have been significantly expanded by the agent.

The European Court of Justice (ECJ) has opined on this subject to state that the term “new client/customer” must not be interpreted too narrowly. The court held that if the commercial agent expands existing business relationships to encompass new products and services of the principal, this is equivalent to acquiring a new client (case ref.: C-315/14).

The principal is deemed to have already derived a benefit if there is the opportunity to continue nurturing and benefiting from said relationships. Whether these benefits actually materialize is not decisive here. What is important is that there was a positive prognosis for carrying forward the business contacts when the agreement was terminated.

On the other hand, the commercial agent is generally not entitled to compensatory adjustment if they themselves terminate the agency agreement or if the principal was entitled to terminate the agreement with immediate effect.

Another point of contention is the extent of any such claim. On this point, the legislature has only defined an upper limit. Section 89(b) HGB provides that the indemnity must not exceed one year's commission or other annual remuneration calculated on the basis of the commercial agent’s average earnings for their activities over the preceding five years. If the agency agreement goes back less than five years, then the basis of the calculation is the average for the period of activity.

However, this upper limit does not tell us anything about how the claim for compensation is to be calculated. In practice, the commissions from dealings with new customers or the expansion of business relations during the last 12 months of activity are often taken as a basis and then projected over a period of between three and five years.

In doing so, a number of uncertainties have to be taken into account. Lawyers versed in commercial agency law can provide counsel.

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