Draft Bill introducing amendments to commercialization contracts in Argentina

by 25 Feb 2024Companies, Contracts, Doing business in Argentina

Some amendments to commercialization contracts in Argentina have been drafted in the so-called Bill of Law Bases and Starting Points for the Freedom of the Argentines, sent by the National Executive Power to the National Congress (hereinafter, the Bill).

The so-called commercialization contracts (agency, concession, distribution, and franchise) received legal-specific regulation with the enactment of the Argentine Civil and Commercial Code (hereinafter, the CCCN).

The Bill contemplates some changes to the regime of commercialization contracts, which will be briefly mentioned below. We will present in tables the current text of the CCCN and the projected one, marking in red the parts introduced, modified, or deleted by the Bill.

a) Agency

(i) Early termination in agency agreements for an indefinite period of time

The issue is currently regulated by Article 1492 of the CCCN.

The proposed amendment aims, in the first place, at the full validity of the autonomy of the will in contractual matters, and also at the supplementary application of the rules of the CCCN in this matter. It rules out the possibility that the rules of the CCCN be interpreted as mandatory for the parties.

Therefore, if the parties do not provide anything on the matter, the supplementary rule reproduces the current solution whereby the notice to be given is one month for each year of the term of the contract.

In long-term contracts and if the parties do not provide anything, the current solution of the CCCN and the solution provided by the Bill could result in very long notice periods, which means that the parties must take extreme precautions in the design of the contracts to agree on maximum limits to the notice periods, limiting the contingencies for the early termination of agency contracts for an indefinite period of time.

b) Concession contracts

(i) Early termination in concession contracts for an indefinite term

By reference to article 1508 of the CCCN, the above solutions mentioned in (a), (i) for agency contracts also apply to concession contracts.

(ii) Definition. The primacy of the autonomy of the will of the parties.

The Bill replaces the current article 1502 of the CCCN:

The definition of the concession contract remains unchanged, adding just a paragraph ratifying the primacy of the autonomy of the will of the parties and the supplementary nature of the legal regulation.

(iii) Term of the concession contract

The issue is currently regulated by Article 1506 of the CCCN.

The Bill establishes the autonomy of the will of the parties to fix the term and the supplementary nature of the rules of the CCCN in this respect.

c) Franchise contract

Among the commercialization contracts, the franchise contract is the one that has received the most amendments.

(i) Concept of the franchise contract.

The Bill replaces the current article 1512 of the CCCN:

The requirement that the franchise contract must have been previously tested to be classified as a franchise contract is eliminated, an issue that would surely cause a lot of controversy in the franchise business.

The prohibition for the franchisor to have a controlling corporate interest in the franchisee’s company is also repealed.

(ii) Definition of business system

The Bill replaces the current subsection c) of Article 1513 of the CCCN:

The Bill eliminates the requirement of secrecy in the business system, a point that would also generate intense discussions.

(iii) Obligations of the franchisor. Franchisor’s information

The Bill modifies some of the franchisor’s obligations, replacing the current article 1514 of the CCCN:

The Project modifies the franchisor’s information obligations, putting the franchisee in charge of the duty to be informed: the franchisee will be the one to decide when the information about the business provided by the franchisor is satisfactory; otherwise, the franchisee should continue asking for the information considered relevant before contracting.

(iv) Term of the franchise agreement

The Bill modifies the issue of the term in the franchise agreement, replacing Article 1516 of the CCCN.

As regards the term of the franchise agreement, the Bill refers to the regulation of the term also made for the concession agreement which we mentioned above in b) (iii), leaving the matter to the absolute freedom of the parties.

It also simplifies the current complex system of the CCCN regarding the tacit extension of the franchise agreement.

(v) Repeals

The Bill repeals the current article 1519 of the CCCN which established the nullity of certain clauses.

Particularly, the repeal of subsection a), invades matters pertaining to the regulation of intellectual property, the validity of which would have to be analyzed in detail.

(vi) Liability of the parties

The Bill replaces the current article 1520 of the CCCN:

The amendments of the Bill seek to definitively exclude any liability of the franchisor for the labor and social security obligations of the franchisee´s employees. In this way, it seeks to avoid the application of labor rules by the labor courts which, despite the clear provisions of the CCCN, in some cases continued to hold the franchisor liable for the franchisee’s employees.

Also, in line with the elimination of the prohibition to the franchisee to control the franchisor’s company already mentioned, the Bill eliminates the requirements of evidence of independence in the invoicing.

(vii) Liability for defects in the system.

The Bill replaces the current Article 1521 of the CCCN:

Improves the wording of the CCCN, deleting the reference to a category of negligence not distinguished by the CCCN. Therefore, negligence and intention are still included as factors of attribution of the franchisor’s liability for defects in the system.

(viii) Termination of the franchise contract

The Bill replaces the current article 1522 of the CCCN:

As is the motivation of the amendments to the Bill, it makes it clear that the regulation is supplementary to the will of the parties, who could freely agree otherwise. The projected wording would allow the introduction of early termination clauses.

Also in line with the primacy of free will, it eliminates the temporal and geographical limitations to the franchisee’s non-competition after the termination of the contract that the current text of the CCCN establishes. It is then up to the parties to decide freely in their contracts the extent of the prohibition of non-competition.

d) Distribution contract

Nothing is established on the distribution contract, losing the opportunity to expressly regulate it, and avoid the numerous doubts that occur in the current wording of the CCCN by referring to the rules of the concession contract insofar as they are relevant (article 1511, paragraph b).

We leave for another opportunity an in-depth study of the projected changes.

Regardless of the difficulties encountered by the project for its legislative approval and the withdrawal of the project by the National Executive Power to reformulate the way to resubmit its content, perhaps for separate issues, changes in the commercialization contracts are foreseen to improve the regulation given by the CCCN, and to overcome its inaccuracies and inconsistencies.

Mario E. Castro Sammartino

 

For additional information on these or any other issues related to doing business in Argentina, please, sign up for our Legal Blog or contact us at any time. Our publications exclusively express the author´s opinion and do not purport to be legal counsel on any case. Should you need it, you must consult with your trusted lawyer.​

 

 

 

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