Distribution Agreements in Argentina: basic regulations no distributor may risk to ignore
Until the new Civil and Commercial Code of the Nation (Código Civil y Comercial de la Nación or CCCN) became in force on August 1, 2015, distribution agreements had not had statutory regulation in Argentina.
The CCCN has set forth that the concession contract´s provisions will also govern the distribution agreement as far as those provisions are relevant to the distribution contract (CCCN, Article Number 1,511, Sub-article b)). Therefore, the following provisions will apply to the distribution agreements in Argentina:
1. Exclusivity: Unless otherwise agreed upon, exclusivity applies to both parties within the assigned territory. Therefore, the grantor of the distribution may not appoint another distributor, nor may the distributor, directly or indirectly, sell the goods beyond the territory or perform competitive activities (CCCN, Article Number 1,503, Sub-article a)). Notwithstanding the above explained, the grantor may reserve for itself certain direct or special sales (CCCN, Article Number 1,504, Sub-Article b);
2. Goods and products included: provided the parties do not stipulate on the contrary, the distribution agreement includes all goods manufactured or commercialized by the grantor of the distribution, including new models; (CCCN, Article Number 1,503, Sub-article b);
3. Grantor´s obligations
Further to the additional obligations the parties may agree on, the CCCN establishes the following grantor´s obligations:
a. To provide the distributor with the minimum quantity of products to adequately meet the selling expectations within the territory, consistent with the payment, financing and collateral patterns foreseen in the agreement (CCCN, Article Number 1,504, Sub-Article a);
b. To observe the territory granted to the distributor (CCCN, Article Number 1,504, Sub-Article b);
c. To provide the distributor with technical information and, where appropriate, with manuals and the personal training needed (CCCN, Article Number 1,504, Sub-Article c) and to supply spare parts for a reasonable term (CCCN, Article Number 1,504, Sub-Article d);
d. To allow the use of trademarks, brand names and other distinctive elements, to the extent necessary to commercialize and advertise in the territory (CCCN, Article Number 1,504, Sub-Article e);
4. Distributor´s obligations
Additionally to what the parties may particularly agree upon, under the CCCN the distributor´s obligations are:
a. To exclusively buy the products from the grantor of the distribution and, where appropriate, spare parts. The distributor must also keep the agreed stocks or, in absence of any stipulation, the quantity sufficient enough to ensure the business continuation and the satisfaction of the customers ‘needs (CCCN, Article Number 1,505, Sub-Article a);
b. To observe the territory, refraining from selling beyond its boundaries, either directly or indirectly (CCCN, Article Number 1,505, Sub-Article b);
c. To have the stores, facilities and equipment necessary to perform the activity (CCCN, Article Number 1,505, Sub-Article c);
d. To use the sale, publicity and accounting system set by the grantor of the distribution (CCCN, Article Number 1,505, Sub-Article e);
e. To train its staff in accordance with the rules given by the grantor of the distribution (CCCN, Article Number 1,505, Sub-Article f).
4. The term of the contract: The term of the contract cannot be less than four years (CCCN, Article Number 1,506, first paragraph). As long as the grantor of the distribution provides the distributor with adequate facilities, a shorter term no less than two years may be agreed upon (CCCN, Article Number 1,506, second paragraph). The continuation of the distribution relationship after the expiration of its term and without prior agreement on an extension, converts the agreement into one of an undetermined term (CCCN, Article Number 1,506, final paragraph).
5. Retribution: it may consist of a commission, a margin on the price of the products, fixed amounts or any other agreed scheme (CCCN, Article Number 1,507, first paragraph).
6. Termination of the contract: Under Articles Number 1,508 and 1,494 of the CCCN, the distribution agreement terminates in the following cases:
a. Distributor´s death or incapacity;
b. Dissolution of the legal entity entering into the contract and not derived from merger or spin-off;
c. Bankruptcy of any of the parties;
d. Expiration of its term;
e. Gross or repetitive non-compliance, reasonably questioning the breaching´s party ability or intent to exactly accomplish future obligations;
f. A significant decrease in the distributor´s business.
When the distribution agreement has an undetermined term, it may be terminated at any time as long as the grantor of the distribution serves the distributor with a one month notice per year of the contract; the parties may agree on longer prior notice terms (CCCN, Articles Number 1,508 and 1492). Failing to comply with the prior notice obligation, entitles the distributor to claim for the profits not earned due to lack of prior notice (CCCN, Articles Number 1,508 and 1493).
The advance notice requirement also applies to termination based on the ground of the existence of a significant decrease in the distributor´s business. However, if such decrease has taken place for at least two consecutive fiscal years, never may the prior notice be longer than two months (CCCN, Article Number 1,495, final paragraph).
Since many of the above-explained legal provisions are of a public order nature and will prevail over any parties’ stipulation on the contrary, they cannot be ignored by international manufacturers or sellers of products or goods wishing to enter into distribution agreements with Argentine distributors. 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.
Mario Eduardo Castro Sammartino
Our publications exclusively express the author´s opinion and do not purport to be legal counsel in any case. Should you need it, you must consult with your trusted lawyer or may contact us at your convenience. If you liked the article, please, share it.
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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