Defendant, a British company, appointed Claimant, of German origin, as its exclusive agent for Germany, Austria and Switzerland. Nine years later, the agent gave notice of termination of their agency agreement due to his having reached retirement age and for health reasons. He claimed compensation under Article 89(b) of the Handelsgesetzbuch (HGB), the parties having decided that German law would be applicable to their agreement. Article 89(b) HGB entitles an agent to claim appropriate compensation from a principal upon termination of their relationship if the principal continues to reap substantial benefits from the business relations acquired by the agent and if termination deprives the agent of commission from business already concluded or to be concluded with business relations acquired by him, provided it is fair and reasonable to pay such compensation. If it is the agent who terminates the agency contract, then he forfeits his right to compensation, unless termination was caused by the principal's behaviour or the agent could not be expected to carry on due to age or ill health. German law further states that the agent's claim may not be excluded in advance and that it must be brought within a year of the termination of his relations with the principal. In the present case, the principal objected to the application of Article 89(b) HGB on the ground that the agency agreement contained a clause expressly excluding compensation. The sole arbitrator first considered whether Article 89(b) HGB was applicable and, if so, whether it could be overridden by agreement between the parties. Deciding that the agent had a legal and non-excludable claim to compensation, he then turned to the question of the amount of the compensation and how this was to be calculated.

'a) Is Article 89b HGB applicable to the termination of the Agreement?

German law being applicable to the Agreement and thus to its termination, Article 89b HGB is the relevant section of the law applicable to the termination of the Agreement.

b) Can Article 89b paragraph 3 HGB be varied by agreement between the parties?

Under German law, an agent's right to receive compensation cannot be varied by agreement between the parties. Article 89b HGB expressly states that the right to receive compensation "cannot be excluded in advance".

This provision of German law is mandatory in nature and cannot be excluded even in the context of an international agreement.1

The Agreement was executed and negotiated by both [Defendant] and [Claimant]. Either party could have engaged professional advisors in respect of reviewing the provisions of the Agreement under German law, yet, it would appear, that neither party obtained any legal advice before signing the Agreement.

In the present circumstances, in the Arbitrator's opinion, it is irrelevant who initiated the introduction of Article 14 and subjecting the Agreement to German law as both parties entered into the Agreement in full awareness of the clauses contained therein. By selecting German law, [Defendant] accepted the overriding aspect of Article 89b HGB and henceforth [Claimant]'s right (as agent) to compensation on the valid termination of the Agreement.

c) Does [Claimant] have a legal claim for compensation under Article 89b paragraph 4 HGB, whilst the payment of compensation is excluded by Article 14 of the Agreement?

As under German Law, Article 89b cannot be excluded by agreement between the parties, [Claimant] has a valid claim for compensation.

Furthermore, the requisite requirements of Article 89b HGB are satisfied:

[Defendant] still has the benefit of the goodwill in respect of the customers [Claimant] introduced to it . . .

Furthermore, [Defendant]'s relationships with customers who already existed prior to [Claimant]'s appointment as agent . . . were maintained and improved during the 9 year period the Agreement lasted.

In accordance with the provisions of Article 89b HGB, [Claimant] made his first request for compensation within the one year time-limit from the date of termination of the Agreement. His request for compensation was made on 5th May 1993, when he first notified [Defendant] of his intention to terminate the Agreement.

Furthermore, Article 89b paragraph 3 HGB (the agent's right to receive compensation on termination of an agreement by himself only exists where the reasons for termination are the agent's age and/or health problems) is fulfilled, as [Claimant]'s reasons for terminating the Agreement were his reaching retirement age and his health problems.

Thus, [Claimant] has a legal claim for compensation under Article 89b HGB notwithstanding the fact that the payment of compensation is excluded by Article 14 of the Agreement.

. . .

e) If [Claimant] is entitled to compensation, on what basis should the compensation be calculated?

The basis of calculating the compensation payable is found in Article 89b HGB and German case law in respect thereof. As a result of Article 89b HGB and relevant case law there are four stages to the calculation which are as follows:

STEP 1

i) The principal's expected turnover for the next 5 years must be calculated. 2

ii) If turnover has been significantly reduced by the loss of a client within the territory of the agent, a reduction is to be made to compensate for this. 3

STEP 2

i) The agent's commission entitlement then has to be calculated. 4

ii) This calculation must be calculated on a gross basis, i.e. before any deductions. 5

iii) This must be ascertained by taking the last 5 contractual years and not calendar years. 6

iv) This figure is then reduced by the commission received by the agent from clients lost over the last five contractual years. 7

v) This figure is then further reduced to take into account the fact that the agent would receive the commission spread over the five year period. Such a reduction should be between 10-20%, according to applicable case law. 8

The reduction factor to be applied is at the discretion of the courts.

STEP 3

The results obtained from Steps 1 and 2 must then be compared and the lesser total taken. 9

STEP 4

According to Article 89b HGB and case law, Bundesgerichtshof Betriebsberater 1973, 1092, the maximum compensation that can be awarded is one year's commission entitlement, i.e. the average of 5 years commission on a gross basis.

It should be noted that where the result taken from Step 4 exceeds that from Step 3, the lesser total is the relevant figure for compensation purposes.'

1
Decision of the Supreme Court Civil Section (Bundesgerichtshof) - Neue Juristische Wochenschrift 1961 page 1061.

2
Case law: Decision of the Supreme Court (Bundesgerichtshof) Civil Section of 3rd June 1971 - BGHZ 56, 246, 247.

3
Case law: Decison of the Supreme Court (Bundesgerichtshof) Civil Section of 3rd June 1971 - BGHZ 56, 246.

4
Case law: Decision of the Supreme Court (Bundesgerichtshof) Civil Section of 6th February 1964 - BGHZ 41, 129.

5
Case law: Decision of the Supreme Court (Bundesgerichtshof) Civil Section of 6th February 1964 - 41, 129, 135; Bundesgerichtshof in Betriebsberater 1973, 1092, 1093.

6
Bundesgerichtshof in Betriebsberater 1970, 101, 102.

7
Küstner, Handbuch des gesamten Außendienstrechts, S. 169, Bd. II, Der Ausgleichsanspruch des Handelsvertreters, 4. Auflage, 1979.

8
Bundesgerichtshof Wertpapier-Mitteilung Urteil vom 2. Juli 1987 - BGH WM 87, 1465.

9
Decision of the Supreme Court (Bundesgerichtshof) Civil Section of 3rd June 1971 - BGHZ 56, 245, 249.