Since May 29, 2019, a new Commercial Code is in force in Ecuador. Certain provisions relating to the protection of free competition are among the many innovations into the legal-economic regime implemented by the Code. Economic operators must link their commercial practices to those innovations as will correspond.
In the first place, it must be mentioned that in certain cases the 2019 Commercial Code creates obligations which are rather inherent to competition law and, in other cases, it confirms rules already included in the Organic Law on Market Power Regulation and Control (“LORCPM” by its Spanish initials). Thus, for instance:
- Expressly prohibits tradesmen to incur unfair competition actions and, generally, to violate the LORCPM;
- Establishes the obligation to register with the Mercantile Registry every declaration of every acquisition (the old Code merely provided that all transfers of shares, without any distinction, had to be reported);
- Prohibits the seller of a company to compete with the business of the transferred company during two years, unless otherwise agreed;
- Prohibits lessees or usufructuaries of a company to carry out economic activities that compete with the leased business (or, in general, to perform any actions making it difficult to preserve its total value);
- Provides and allows to execute exclusive distribution contracts as well as the resulting territorial allowances, provided that those agreements are in keeping with the LORCPM;
- Expressly permits discounts and bonuses on the sales price according to what is permitted by the LORCPM;
- Allows to agree on “exclusive agency” and “exclusive supply” obligations between the principal and the agent as long as they do not oppose the LORCPM.
The second observation is that certain contracts have been legislated with great detail which – although almost always allowing the parties to agree to the contrary – may seem to oppose the necessary flexibility of entrepreneurial activities. When stipulating about distribution, for instance, the Commercial Code makes reference to the distributors’ supply levels, periods to return the stock, authorization to the supplier to make direct sales, need to enter into an agreement so that a contract may be assigned, etc. One of the most remarkable differences between the new Commercial Code and the 1960 Code is precisely the regulation of several contracts that until now had been unnamed (that is, ruled by the general regime of obligations instead of a specific regime for each contract), even if those contracts are usually entered into for commercial activities.
Along this line of thought, another series of effects brought about by the Commercial Code into competition law involves the indirect effects that occur in legal transactions that, due to their consequences in the markets, usually draw the attention of the Superintendency of Market Power Control. In the most important aspects, the new Code includes supply contracts, commercial concessions of real property, agency, distribution and franchise contracts and entrepreneurial collaboration (joint ventures and commercial consortia). In these aspects, we wish to highlight the following:
- In respect of lease of commercial premises: It prohibits the obligation to sell certain goods or to provide certain services to be extended up to demanding the sale or provision of services of specific trademarks, or acquiring them from specific suppliers.
- In respect of the agency contract: It provides that the principal must indemnify the agent if the former has breached its “loyalty or non-competition” duty.
- On the distribution contract: It mentions that the distributor “assumes the risk and venture of such operations” and, generally, makes a difference between agency and distribution based on the economic individuality theory. Besides, the Commercial Code orders that distribution contracts must be executed in writing and that the form of payment must be mentioned. In indefinite term distribution contracts it establishes a 90-day notice of termination obligation, except in the case of serious or repeated breach of contract (this provision opposes the 30-day notice in the LORCPM).
It is particularly striking that the Code orders that distribution contracts must mention “the economic advantages for the distributor”.
Finally, we note that the Commercial Code is emphatic about the right of an individual affected by unilateral contract termination to be indemnified for the resulting damages. Cases are even mentioned where the amount of the indemnification must be greater than the amount specified on the basis of the usual regime of the Civil Code only.
Just as every legislative innovation – and even more so in one of such great importance – the new Commercial Code brings about debates about its usefulness and convenience as well as some interpretative doubts that are not limited to the scope of competition law or to the cases mentioned hereinabove.
Andrés Rubio-Puente
