Netherlands: Dutch Supreme Court Provides Guidance On Calculating Indemnity Payments On Termination Of A Commercial Agency

A commercial agent whose contract is terminated may be entitled to an indemnity for new business (klantenvergoeding). In its decision of 2 November 2012 (LJN: BW9865), the Supreme Court set out guidelines for calculating such indemnity. These guidelines will help contract parties determine where they stand on termination of a commercial agency contract.

Facts

T-Mobile Netherlands B.V. (T-Mobile) and a party trading under the name Icom Telecom (Icom) entered into a commercial agency agreement on 1 September 2003. The agreement was terminated by T-Mobile on 1 December 2006. T-Mobile did not explain its reasons for termination, and Icom claimed an indemnity from T-Mobile for new business. The central issue in the Supreme Court proceedings was how the indemnity due to Icom should be calculated.

The Supreme Court's decision

The Supreme Court used this case to provide clarity on the calculation of the indemnity and based its ruling on the European Court of Justice's decision of 26 March 2009 (C-348/07).

There is a three-step procedure for calculating the indemnity.

The first step is to quantify the benefits that the principal derives from transactions with those customers that were secured by the agent. Those benefits lie in the principal's ability to continue using customer relationships without paying commission to the agent responsible for securing those relationships, but they do not comprise any other advantages resulting from the agreements secured by the agent, such as receipt of subscription fees. The benefit to the principal must be determined on the basis of the gross commission for new as well as enhanced existing customers, earned by the agent in the past twelve months. This amount should then be adjusted for factors relating to (a) the duration of the benefit that the principal is expected to derive from the relevant transactions, (b) the turnover in the customer base, and (c) the accelerated receipt of commission income by the agent as a result of the lump sum indemnity payment.

The second step is to assess if the amount calculated in the first step should be adjusted based on what is considered equitable. All circumstances of the case should be taken into account, in particular the commission that the agent misses out on as a result of the termination. With regard to this step, the Supreme Court ruled that the amount of commission that the agent has lost should be determined on the basis of the gross amount of commission. That gross commission comprises all elements of remuneration that vary according to the number or value of products. It does, for example, include the amount of commission used by the agent for gifts or discounts to customers, but does not include reimbursements for expenses that do not vary according to the number or value of products, such as an advertisement fee. In assessing what is equitable, a situation where the agent pays for certain expenses out of the commission received may be taken into account, but it would have to concern a substantial part of the commission received. Another relevant factor in determining the amount of lost commission is the extent to which the agent would have been able to enter into new subscriptions with customers that were introduced by another agent. Subscription renewals for customers not introduced by the agent should therefore not automatically be left out of the calculation. The Supreme Court also ruled that the lost commission should be estimated on the basis of the reasonably anticipated turnover in the customer base. This means that the courts may not automatically assume that this is a period of approximately one year.

The third step is assessing if the amount calculated on this basis does not exceed the agent's average annual remuneration. If so, the amount of indemnity will be limited to that average annual remuneration. The Supreme Court ruled that the maximum amount should be based on gross remuneration, including expenses, such as gifts or discounts, paid out of this amount.

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