Distribution agreement for foreign houses in Costa Rica

Picture of Nikole Sánchez

Nikole Sánchez

With respect to the distribution contracts of foreign houses signed in accordance with Law number 6209 and that continue after the reform of the law introduced in 2007, two questions arise. Firstly, should the indemnity be considered an acquired right and, secondly, which indemnity regime should be applied?

It must be analyzed at what moment the generating event arises, because the seniority of the contractual relationship should not be considered, by itself, as a parameter to define whether the indemnity regime of Article 2 of Law 6209 applies, which provides as follows: “If the representation, distribution or manufacturing contract is terminated for causes beyond the control of the representative, distributor or manufacturer, or when the term contract reaches its expiration and is not extended for causes beyond their control, the foreign company shall indemnify them with a sum to be calculated on the basis of the equivalent of four months of gross profit for each year or fraction of time served. The value of the indemnity shall in no case be calculated for a term exceeding nine years of service. In order to establish the gross profit for each month, the average monthly profit accrued during the last four years or fraction thereof of the term of the contract, in the case of representatives and manufacturers, and the average of the last two years or fraction thereof, in the case of distributors, shall be taken”.

It is also worth analyzing whether the regime of article 10 bis introduced with the reform of 2007 should be considered, whose text states: “When, based on any of the provisions of this Law, any indemnity for damages is claimed, the pecuniary damage caused or that which may necessarily be caused as a direct and immediate consequence of the infringement of the rule or the violation of the subjective right must be fully compensated, in accordance with the principles of equity and sound criticism. In this matter, the rules of the Civil Code shall apply”.

According to the resolution of the First Chamber (Resolution 000014F-S1-2023 of January 19, 2023), it is established that in no way could it be understood that, by the mere fact that the parties were bound by a distribution contract before the reform but that subsists even after it was introduced, there was an acquired right to be indemnified by the distributed company, and even less, that the seniority of the commercial relationship constitutes the (only and appropriate) parameter to determine the indemnity regime to be applied.

The Chamber determines that since the generating event occurred after 2007 and since there is no acquired right (to be indemnified), the indemnity regime provided in article 10 bis of the 2007 reform must be applied, so that the economic injury caused or that which may necessarily be caused, as a direct and immediate consequence of the infringement of the rule or of the violation of the subjective right, must be fully compensated.

The above judicial precedent, which is the only one known to us so far, somehow sets a precedent that could be more beneficial for foreign houses with respect to the termination of the relationship and that sows the doubt then as to whether the old relationship could be terminated with the 10 months’ notice.