While the courts, and particularly the Supreme Court of Justice of Colombia, have been consistent in interpreting the protective provisions on commercial agencies, the discussion on what is and what is not a commercial agency has led to inconsistent arbitration decisions.

As in other Latin American countries, there are legal provisions in Colombia designed to protect some forms of distributorship (specifically, those that qualify as commercial agencies). Thus, there is a tendency on the part of distributors to think that the protective laws apply to all forms of distributorship. The main reason for claims based on commercial agency provisions are the special payments and indemnities due to the agent upon termination of a commercial agency relationship. Furthermore, it has become common practice for distributors to claim, regardless of the terms and conditions of the given agreement, that they are true commercial agents and that the success of the pertinent product or service in the market is due to their promotional efforts.

In its decisions on commercial agency, the Supreme Court of Justice held that commercial agency provisions are not applicable to distributorships where the distributor purchases products for resale. The court interpreted the phrase 'products thereof', in the context of commercial agency, to mean that a merchant is a commercial agent only if the principal remains the owner of the products until the products are sold to customers. The court has ruled that when a merchant purchases, distributes and sells products, he or she is not performing activities of a commercial agent, but simply those of a seller or distributor of his or her own products.

In addition, the court held that commercial agency is a type of mandate. This means that the agent acts in his or her own name, but (i) for the account, and at the risk, of the principal (mandate without representation), or (ii) on behalf and for the account and risk of the principal (mandate with representation). Consequently, whenever the distributor acts for his own account and risk, there is no commercial agency.

Even though decisions of the Supreme Court do not constitute a binding precedent, in practice, lower courts have followed this interpretation. Moreover, lower courts have simplified the interpretation by holding that the mere fact of a distributor purchasing for resale results in the contract not being one of commercial agency.

Unlike the courts, which have maintained a consistent interpretation for over fifteen years, decisions of the arbitration tribunals have not. Therefore, litigation rather than arbitration is advised with regard to distribution agreements.

For further information on this topic please contact Eduardo Zuleta at Zuleta, Garrido, Araque & Jaramillo by telephone (+571 310 6614) by fax (+571 310 6286) or by email ([email protected]).

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