The recent case of COPETROL SA vs. ESSO PETROLERA ARGENTINA SRL is one more example of the protectionist nature of the law on representation and distribution in Paraguay establishing compensation with different criteria.
As is well known to some companies doing business in Paraguay, Law 194/93 which establishes the legal regime of contractual relationships between manufacturers and foreign firms and individuals or legal entities domiciled in Paraguay, is considered to be a extremely protective law regarding the person established in the territory Paraguayan. Also, it is known that the case law relating to this law is no uniform, especially contradictory court rulings in regard to the calculation of claims against foreign companies.
Due to the different existing interpretations made by courts in the calculation of damages; a recent decision of the First Instance Civil and Commercial Court 7th Office at the trial COPETROL vs. ESSO OIL ARGENTINA S.R.L., was based according to Decree 7/91 which was approved with amendments by Law 194/93 in order to fix the amount of compensation payable by the foreign company.
One of several interesting factors in this particular case is that ESSO OIL ARGENTINA S.R.L. (foreign company) was always aware of the existence of the business relationship with Copetrol SA. It was expressly acknowledged that the relationship between the parties was for 21 years. Consequently, the Judge did not need to rule on this issue. Moreover, ESSO OIL ARGENTINA S.R.L. presented prior to this a purely declaratory judgment to establish the compensatory damages due to the termination of the relationship between the parties; this action was being solved simultaneously to the above lawsuit filed by Copetrol S.A.
The amount claimed by Copetrol S.A. by way of compensation for damages resulting from the termination without cause of the contractual relationship were the following items: 1) compensation in accordance with the provisions of Law 194/93, 2) damages for dismissal of staff, 3) re buying stock and; 4) compensation for lost profits.
Regarding point 1 "compensation as set forth by Law 194/93”, the court established the use of the coefficient 5 in Decree 7/91 on the basis that although the Law 194/93 provides the calculation for a minimum compensation based on the average gross profit for the last three years and the duration of the relationship in ascending scale; should be set just compensation in response to the 21-year relationship.
So likewise also based on the minimum standards of the Act to determine the compensation, the judge upheld the workers' compensation. He also upheld the re purchase of stock pursuant to the provisions of the Act. However, with respect to the lost profits, the court considered that it is included within the compensation and that the law makes no distinction between damages and lost profits. Finally, the court imposed interest payments retroactively and imposed the cost to ESSO OIL ARGENTINA SRL
In short, when establishing the calculation of compensation in a lawsuit, because there is no certainty as mentioned there are several interpretations. Additionally it is also important to take into account the duration of the relationship and the average gross profit for the last three years distribution, some judges take into account other factors (labor contingencies, lost profits, etc.). But much of the contradiction arises when applying the coefficient based on the duration of the business relationship.
Because of this diversity of views as to how to calculate the compensation, clear guidelines should be established in force in order to have a uniform law legislation.