The Court Established the Reasonable Term to Give Prior Notice of Termination Without Cause for a 40 years’ Distribution Agreement

In “RODRÍGUEZ Y GONZÁLEZ SRL c/ BRITISH AMERICAN TOBACCO ARGENTINA SAIC Y F (formerlyNobleza Piccardo SAIC) s/ SUMARIO” (Expte. N° 13343/1999), the plaintiff claimed a compensation for the damages caused by the sudden termination of the distribution agreement by the defendant.

It was a contract for the distribution of cigarettes, agreed verbally, for an unlimited period, without exclusivity, which was in force during 40 years until the defendant decided to terminate without prior notice to the other party.

In her decision, the first instance judge condemned the defendant to compensate the plaintiff, on the basis that, although the defendant had the right to terminate the contract, the validity of such right was subject to  reasonable prior notice to the other party, which was not the case.

Consequently, the judge condemned the defendant to compensate the damages caused to the plaintiff.

Both parties appealed such decision and on 9 March 2022, Division B of the Commercial Court of Appeals resolved both appeals, in the terms below:

The Court explained that there was no illicit behavior in the termination per se, but in the untimeliness of such termination. To be considered valid, the termination should have been communicated with a reasonable prior notice for the plaintiff.

To be reasonable, the prior notice should have given the other party the opportunity to i) restore the situation of plaintiff upon termination; ii) resolve the new difficulties that a termination will normally generate; iii) adapt their activity to a new commercial reality. To that effect, the Court took into consideration the duration of the contract and the business structure of the plaintiff.

In conclusion, after analyzing that background, the court established that a reasonable prior notice to terminate such contract, which had been in force for 40 years, should have been 12 months.

The court condemned the defendant to pay a compensation equivalent to the net profits obtained by the distributor during the last 12 months of effectiveness of the relationship.

On the other hand, the Court rejected other damages claimed by the plaintiff (compensation for employees’ dismissal and termination of property lease contracts), on the basis that those consequences would also exist in the case the contract had been terminated by the defendant without liability.

Regarding the applicable law, the Court said that, due to the time the facts occurred, the issue was resolved under the  former Civil Code and Commerce Code. Notwithstanding the foregoing, for academic and interpretative purposes, the court considered the rules of the new Civil and Commercial Code.

Although the Court set notice at 12 months, in the event the National Civil and Commercial Code (section 1492) were literally applied, the prior notice required would have been 40 months.