1/2/2023. Arbitral award

Underlying facts of the award

1. The Claimant is an […] company providing consultancy and marketing services for infrastructure and other industrial projects for foreign companies intended to be active in such project in […]. Respondent is a […] company active internationally in designing, constructing, revamping and modernizing cranes for ports and shipyards including the supply of spare parts and other connected service. On 13 March 2006, the Claimants and the Respondent concluded the Agency Agreement.
2. In the Agency Agreement, the Respondent entrusted the Claimant “with the sole & exclusive representation of [the Claimant] in […] to promote the sale of all of [the Respondent’s] products — like floating cranes, port wharf cranes and cargo handling equipment, split barges, dredgers, etc. (the “Products”) — designed and built by [the Respondent]” (the “Agency”). Accordingly, Claimant represented Respondent in numerous tenders and projects, some of which it won and some of which it did not.
3. On 3 February 2020 Respondent terminated the Agency Agreement with immediate effect as of 1 February 2020 (“Termination Letter”). Later the Respondent sent a separate letter containing the reasons of the termination which were the Claimant’s continuous, repeated and serious breaches of the contract and violations of the Commercial Agency Act (the “Alleged Breaches”), which manifested in the Claimant raising the price offers in the tender given by the Respondent without prior approval of the Respondent in case of various tenders (“Termination Reasoning Letter”).
4. On 22 April 2020, the Claimant’s lawyers sent a letter rejecting the unilateral termination with immediate effect of the Agency Agreement and requesting payments due on the basis of the Agency Agreement.

Declarations of the parties

5. On 29 January 2021, the Claimant submitted the Statement of Claim in which the Arbitral Tribunal was requested to order the Respondent:

• “to pay EUR […] representing the commission due for contracts in which […] assisted […] before February 2020;
• to pay the EUR amounts due for contracts signed by […] in […] during the year 2020. To this end, […] requests that […] indicates and communicates all the contracts it signed after February 2020;
• to pay EUR […] representing the equitable indemnity due to […];
• to pay interests on all the above amounts in line with Article 301/A (2) of the 1959 Civil Code until effective payment;
• to bear all the costs incurred by the Claimant under this arbitration procedure, including administrative costs and legal fees”

6. The Claimant argued that the Alleged Breaches cannot be used as arguments for the Termination in accordance with Section 316. § (1) of Law No. IV of 1959 on Civil Code (the “Civil Code”) because the Respondent accepted the performance of the Claimant after the Alleged Breaches.
7. With regard to the specific Alleged Breaches the Claimant argued that in case of the […] Contracts and also generally when tendering the Claimant was unable to increase the price because the Respondent was in control through the tender, it signed the contracts directly with the Client, issued the invoices to the Client and always instructed by the Respondent to invoice a specific amount as Commission. The […] Tender was not lost as a result of the actions or non-actions of Claimant but as a result of the actions or non-actions of the Respondent because the Respondent first, submitted an incomplete tender, then withdraw from the tender and not because a former employee of the Claimant represented the winning bidder. In case of […] Project it is not only untrue that the Claimant “failed miserably in representing” the Respondent but it was the result of the efforts of the Claimant the scope of the project was extended to all 8 cranes.
8. On 17 March 2021, the Respondent submitted its Statement of Defence in which the Respondent requested the Arbitral Tribunal:

• “to dismiss the claims submitted by Claimant in its Statement of Claim in their entirety;
• to order the Claimant to pay EUR […] plus late interest from 18 June 2019 to the Respondent for the excessive commission fees paid by Respondent to the Claimant;
• to order the Claimant to pay EUR […] plus late interest (from 21 February 2019) to the Respondent as damages for the lost tender concerning the […];
• to order the Claimant to pay EUR […] plus late interest (from 25 February 2018) to the Respondent as damages for its breaches of contract in connection with the […] Project between 2016-2018;
• to order the Claimant to bear all costs incurred by the Respondent in this procedure, including administrative costs and legal fees”.

9. In its reasoning the Respondent argued that the reason of sending the Termination Letter were the Claimant’s violations of the Agency Agreement in particular submitting offers to the Clients without the Respondent’s consent which caused “negative pecuniary and other consequences to the Respondent”.
10. As legal reasoning the Respondent further argued that the Claimant breached several points of the Agency Agreement and is obligations under Section 5. § (1)-(3), 5. §, 6. § (2) and 8. § (49) of Commercial Agents Act.
11. The Alleged Breaches were manifested:

• in losing various tenders when the Claimant unilaterally increased the asking price including the […] Tender;
• in case of the […] Contracts where the prices in the purchase order of the Client were significantly higher than asking prices communicated by the Respondent to the Claimant;
• during the lost […] Tender the employee representing the Respondent joined a competitor who later won the tender;
• in course of the […] Project had to assume extra costs as they were misled by the Claimant regarding the settlement of these extra costs;
• during the […] Project the Claimant mismanaged the project and “failed miserably in representing Respondent’s interests in the timely conclusion of the project”.

12. In terms of legal argumentation, the Respondent argued that:

• in accordance with the Court practice manifested in the Opinion No GK 16 of the Economic College of the Supreme Court the Respondent was entitled to give the reasoning of the termination only after the Termination;
• the long-term relationship of the Parties does not make the Termination unlawful;
• the identity of […] as the new agent of the Respondent does not make the Termination unjustified;
• taking into consideration of the Claimant actions since the Termination including the attempt “to prevent the Respondent from conducting any business in […]” by prohibiting to register a new Agent at the […] and informing the Clients about the dispute between the Claimant and the Respondent, it was fully justified that the reasoning of the Termination was provided at a later stage;
• Section 316. § (1) of the Civil Code is not applicable.

13. With regard to the Claim of the Claimant the Respondent declared that:

• although Respondent does not dispute that the Claimant is entitled to the Commission for Contract before February 2020 the Clients only made payment resulting in EUR […] as Commission;
• with regard the Commission due Contract after February 2020 there is only one project the […] Project which could be taken into consideration but the Respondent contest that this contract is mainly attributable to the efforts of the Claimant;
• The Claimant is not entitled to the equitable indemnity because

1. the Respondent terminated the Agency Agreement with immediate effect based on the Alleged Breaches in accordance with Section 19 of the Commercial Agents Act;
2. even if the Termination is found unjustified the Claim for equitable indemnity is widely excessive;
3. the amount of the Claim for equitable indemnity is not supported by the facts and laws;
4. the Claimant always brokered “one-off” deals based on public tender and not developed relationships;
5. when calculating the equitable indemnity, the unlawfully charged extraordinary commissions cannot be taken into consideration.

• no damages has been substantiated by the Claimant and potential damage would fall into the scope of the equitable indemnity anyway.

14. The Counterclaim raised by the Respondent includes

• repayment of excessive Commission paid to the Claimant based on Section 12. § (6) of the Commercial Agents Act because in […] Tenders the Respondent paid more than […]% Commission agreed in the Agency Agreement and increased to […]% in certain emails in 2012 in an amount of EUR […] plus late interest from 18 June 2019;
• payment of damages for losing the […] Tender as a result of the Respondent unilaterally increasing the tender price in amount EUR […] plus late interest from 21 February 2019;
• payment of damages for the extra cost assumed by the Respondent as a result of the breaches of the Claimant in the […] Project in an amount of EUR […] plus late interest from 25 February 2018, and
• any other damage suffered by the Respondent as a result of loss of goodwill to be quantified later.
• The Claimant rejected the Counterclaim because with regard to

1. the repayment of excessive Commission because the Respondent itself calculated the amount of the Commission and instructed the Claimant in emails to issue its invoices for the excessive Commission,
2. the damages for lost Tenders because no evidence was provided that

1. the Claimant unilaterally increased the asking prices in the Tender and
2. the Respondent would have won the render had the asking price been lower.

3. Other Damages because

1. the Respondent never complained about mismanagement by the Claimant,
2. there is no causal relationship between the alleged conduct and extra costs assumed by the Respondent,
3. no evidence was provided for quantum of the damages.

The arbitral award

15. The Alleged Breaches cannot serve as reason for Termination because

• they had been only mentioned in the Termination Reasoning Letter,
• they had never been reported to the Claimant,
• the Respondent was aware of some Alleged Breaches long before the Termination and using them much later would be an abuse of right in accordance with section 5. § (1) of the Civil Code,
• the Respondent accepted performance of the Claimant without reservation after the Alleged Breaches took place in accordance with section 316. § (1) of the Civil Code.

16. The Termination Reasoning Letter cannot be considered as termination notice.
17. The Arbitral Tribunal notes that the Commercial Agency Act enables two termination method. The termination of agency agreement for indefinite period of time only with proper termination period and limited reasoning to calculate the indemnity as set out in section 16. § of the Commercial Agency Act – a contrario the agency agreement concluded for definite period of time cannot be terminated using this termination method. The other termination method is the termination of the agency agreement concluded for indefinite or definite period of time with immediate effect for serious breach of the agency agreement as regulated in section 17. § of the Commercial Agency Act.
18. The rule in section 16. § of the Commercial Agency Act is the same as the rule in article 15 of the Commercial Agents Directive and the rules in section 17. § of the Commercial Agency Act are permitted by article 16 of the Commercial Agents Directive.
19. First, the Arbitral Tribunal analysed whether any other rules should be taken into consideration to decide on the validity and lawfulness of the Termination. The Arbitral Tribunal agrees with the Claimant that the provisions of the Civil Code are not applicable because the provisions of the Commercial Agency Act regulates all possible termination events of an agency agreement i.e. “termination at convenience and termination with cause” both for agency agreement concluded for definite and indefinite period of time which makes them lex specialis viv-a vis the provisions of the termination events for a mandate agreement in the Civil Code. As a result the conclusions of GK 16. which is based on the provisions of the Civil Code, are not applicable and cannot be used to support the argumentation of the Respondent that the reasons of the Termination could be provided after the Termination.
20. Second, the Arbitral Tribunal finds it important to note that contrary to the premise of GK 16. which is based on the hypothesis that no reason was communicated at the time of the termination (rescission) but later a cause was given to support the termination with immediate effect for cause, the Termination Letter specified the reason of the Termination with immediate effect i.e. that the departed employees left the Respondent which was not a breach of the Agency Agreement and therefore, it did not terminate the Agency Agreement with immediate effect, and giving new reasons should have required a new termination notice as it follows from the “direct causal link” concept of European Court of Justice, because the termination notice included in the Termination Letter which did not trigger the termination of the Agency Agreement with immediate effect on the ground of the wrong reason is inappropriate to trigger the Termination at a later stage.
21. Third, the Arbitral Tribunal also agrees with the Claimant that the Termination Reasoning Letter cannot be considered as a termination notice because the Termination Reasoning Letter was not construed and drafted as a termination notice by the Respondent because it did not contain a statement of termination. It also specifically declared that it was a supplement to the Termination Letter. In line with section 207. § (1) of the Civil Code the Claimant could not interpret it as termination notice, and the Respondent also did not give an explanation why it argued first that the Termination Reasoning Letter was not a termination notice.
22. On the basis of these considerations the Arbitral Tribunal concludes that the Termination Letter was not a proper termination notice for termination with immediate effect because the reason of termination specified in them does not qualify as a valid reason of termination.
23. It did not terminate the Agency Agreement with immediate effect, however, taking into account, section 207. § (1) of the Civil Code, and the fact that there was no reference to the Alleged Breaches in the Termination Letter, the Termination Letter could only be interpreted by the Claimant at that time and thus qualify as a notice not to renew the Agency Agreement at the end of the definite term of one year, and therefore the Agency Agreement terminated at the end of its term on 31 December 2020.
24. With regard to the Claim for Commission for Contract before February 2020, the Respondent did not dispute that the Claimant is entitled to these Commissions, and the Claimant did not dispute and accepted the amount calculated by the Respondent as Commission for Contract before February 2020 already due. Therefore, the Arbitral Tribunal establishes that Claim for Commission for Contract before February 2020 in the amount of EUR […] as requested by the Claimant.
25. With regard to the Claim for Commission after Contract after February 2020 as a result of the decision of the Arbitral Tribunal that the Agency Agreement terminated only on the Termination Date, the […] Project falls within the time period when the Agency Agreement was in full force and effect and therefore, the Commission for the […] Project is due to the Claimant as exclusive commercial agent of the Respondent in […] in accordance with the Agency Agreement and section 9. § (1) and (2) of the Commercial Agency Act.
26. As far as the amount of Commission for […] Project is concerned the Arbitral Tribunal accepts the amount of EUR […] the Claimant requested.
27. On the basis of these considerations the Arbitral Tribunal concludes that the Commission payable is EUR […].
28. The Claimant based its claim for equitable indemnity on section 18. § of the Commercial Agency Act. The Arbitral Tribunal could not come to an unanimous conclusion regarding the payment of the Equitable Indemnity.
29. With regard to the condition set out in section 18. § (1) a) of the Commercial Agency Act, the majority if the Tribunal (the “Majority”) is of the opinion that the precondition for the Respondent to participate at any tender issued by the Clients with a chance of success was the proper introduction to the Client by a trusted agent as it was demonstrated by the history of the Respondent operation in […] therefore the Client were not “repeat clients” in the traditional meaning of “repeat clients” (when a client after the first deal comes automatically for further deals, although the […] Contracts came in such a way without a tender process) but for the purposes of the Commercial Agency Act the Clients are “repeat clients” nevertheless, however the Majority agrees with the importance of the “nurturing” work during the tenders issued by the Client which was done by […] after the Termination attributes more significant proportion in winning the tender than the original introduction which has to be taken into consideration when calculating the equitable indemnity.
30. When judging whether the equitable indemnity is equitable according to section 18. § (1) b) of the Commercial Agency Act, the Majority states that the actions of the Claimant after the termination however harsh they were could be considered as protection of its interest as exclusive agent in […] because during the term of the Agency Contract the Respondent appointed another agent, which was clear breach of the exclusivity of the Claimant. The Majority also highlights that evidences were provided that the Respondent knew and never complained about some price increases. Finally, the Majority also states that excessive commissions should not be taken into consideration when establishing the amount of equitable indemnity.
31. On the basis of the above consideration the Majority concludes that the Claimant is only entitled to arbitrary amount of equitable indemnity because the Excessive Commissions cannot be taken into consideration in the calculation. The lack of deals from […] should take into consideration even if it is temporary and caused by the lack of need for crane works; and most importantly, the equitable indemnity is not proportionate what the Claimant would have been earned as Commission had the Agency Agreement not terminated because Claimant who had the burden of proof regarding the Commissions lost was unable prove that it could have earned after the Termination more than the yearly average of EUR […] argued by the Respondent because their own calculation of the value of the contracts actually signed with the Clients (and not simply tender participation which could be won by a competitor) after Termination result in EUR […]; therefore the Majority decides to award to the Claimant EUR […] as equitable indemnity.
32. The Damages claimed by the Claimant had never been specified let alone proven therefore the Claim for Damages is dismissed.
33. The Claimants requested the Arbitral Tribunal to award the late payment interest on the sums awarded by the Arbitral Tribunal in accordance with 301/A. § (2) of the Civil Code.
34. Taking into consideration that both the commission payable and the equitable indemnity payable denominated in Euro therefore, according to section 301/A. § (2) of the Civil Code late payment interest base rate is the base rate of the issuing bank of such foreign currency, the Arbitral Tribunal decided to take into consideration the deposit rate offered by the European Central Bank, which corresponds best to the notion of base rate of the National Bank of Hungary with the proviso when this rate is negative it should be considered 0% for the calculation.
35. The starting day for calculating the late payment interest is 31 December 2020 for the equitable indemnity payable because the late payment interest for equitable indemnity is due on the Termination Date. The starting day for calculating the late payment interest is 17 July 2020 for the commission payable because the Claimant did not provide any date when the Commission for Contracts before February 2020 and Contracts after February 2020 would have been due therefore the Arbitral Tribunal arbitrary choose 17 July 2020 which the median day between 1 February 2020 and 31 December 2020.
36. The Respondent requested the Arbitral Tribunal as part of the Counterclaim to order the repayment of the excessive Commission. The Arbitral Tribunal concludes that as demonstrated by the process to invoice and pay the excessive Commission the Parties themselves interpreted the Agency Agreement that the Commission could be agreed on a case‑by‑case basis because the Parties discussed the amount of Commission before any invoice for the Commission had been issued. Furthermore, they agreed in the amount of Commission sometimes in writing sometimes only verbally which agreement is not equivalent of the amendment of the Agency Agreement requires written form, and the Respondent willingly paid the invoices for excessive Commission and never complained about it, which should be interpreted as implied conduct in the meaning of section 216 of the Civil Code as it is also demonstrated in the Hungarian Court practice.
37. The Claimant was right that section 12. § (6) of the Commercial Agency Act does not provide the required legal ground for the repayment of the excessive Commission because it serves a specific purpose only i.e. to pay back commissions subject to a specific condition (e.g. the yearly commission for selling insurance by the agent is paid at the beginning of each year until the client maintains the insurance policy and pay the premium for the year but the commission should be paid back if the client decides during the year to cancel the insurance policy).
38. The unjust enrichment is not applicable to the repayment of the excessive Commission because the process was conducted with reference to the Agency Agreement enabling the case-by-case case agreement on the amount of the Commission which exclude the unjust enrichment and the agreement demonstrated by the process did not support the invalidity of the excessive Commission.
39. The Respondent did not prove that the excessive Commission violated the public mores and went beyond the “freedom of agreement” set out in section 201. § (1) of the Civil Code because the Parties acted under market conditions when the consideration for the Agency was paid and neither Party was subordinated to the other.
40. In the light of the above, the Arbitral Tribunal denies the relief to award the repayment of the excessive Commissions.
41. The Respondent requested the Arbitral Tribunal to order to pay compensation for damages for lost Tenders.
42. In order to award compensation for damages the Respondent would have had to prove the unlawfulness or breach of the Agency Agreement by the Claimant, the damages the Respondent suffered, and the causality between the two.
43. The Arbitral Tribunal concludes that the Respondent did not exhaust its burden of proof at least with regard to causality between the Alleged Breaches as breach of Agency Agreement and the damages suffered by losing the Tenders because it did not proved with certainty, only stated, that it would have won the Tenders with lower prices because the chance to win the Tender whether it is 50% or less does not satisfy the direct and absolute causality required by the Civil Code, therefore, Arbitral Tribunal denies the Respondent’ relief in connection with damages for lost Tenders.
44. The Respondent asked the Arbitral Tribunal to award damages for the extra cost assumed by Respondent in the […] Project which was caused by the promises of the Claimant and the mismanagement of the Claimant during the project.
45. The Arbitral Tribunal concludes that the Respondent did not satisfy its burden of proof to prove that the conduct of the Respondent during the […] Project was a breach of the Agency Agreement, there is a casual link between the conduct of the Claimant and the alleged damages, and the extra cost that could be considered as damnum emergens, therefore, the Arbitral Tribunal dismisses this Counterclaim.
46. The General Damages claimed by the Claimant had never been specified and quantified, the loss of goodwill which was the alleged reason of suffering damages was not proven, and the damages were not proven because the request for general damages according to section 359. § (1) of the Civil Code still makes it necessary to prove that damages were suffered only the magnitude cannot be calculated exactly, therefore, the Counterclaim for General Damages is dismissed.

(Vb/21010)