Judicial decision subordinates approval of transaction to the effective creation of the Antitrust Tribunal

Argentina’s antitrust practice changed considerably after the constitutional reform of 1994. New section 42 of the Argentine Constitution provides, among others, that competition, defense against market distortion and control over natural or legal monopolies are constitutional rights.

In September 1999 the Argentine Congress modified the former antitrust regime, by means of Law No 25,156 and Decree No 1019/99, whose provisions went into effect on September 28, 1999, and were further regulated by Decree No 89/01. Likewise, the Antitrust Law was further modified by Decree No 396/01, effective as of April 9, 2001 (the “Antitrust Law”). The Antitrust Law providesfor the control of certain merger and acquisition transactions.

The Antitrust Law created the National Tribunal for the Defense of Competition as the enforcing agency (the “Antitrust Tribunal”) and stipulated that, until the appointment of the Antitrust Tribunal members, its role should be fulfilled by the pre-existing Commission for the Defense of Competition (the “Commission”). The Commission’s power to enforce the Antitrust Law is specifically granted in section 58 of the Antitrust Law.

At the beginning of 2004, Cencosud, the Chilean supermarket holding owner of Jumbo supermarkets and Easy home improvement outlets in Argentina, executed agreements to acquire Disco and Vea supermarkets, owned by the Dutch company Ahold. As a consequence of the acquisition agreement, both companies filed the pertinent forms with the Commission.

On April 7, 2004, Mr Manuel Belmonte, as a plaintiff on his own behalf and on behalf of the Rural Association of General Alvear (“Asociación Ruralista de General Alvear”) of the Province of Mendoza, filed an injunction (“amparo”) with the Federal Judge of San Rafael, Province of Mendoza, requesting the suspension of the antitrust review of the Cencosud/Ahold transaction until the Antitrust Tribunal and/or the Commission were duly regularized according to the terms of the Antitrust Law. Plaintiff stated that the transaction harmed the Province of Mendoza’s relevant market and that its effects could not be analyzed by an irregular enforcing agency. They also requested a preliminary injunction or precautionary measure to immediately suspend the analysis of the transaction by the Commission.

The Federal Judge of San Rafael, Mendoza, through decisions dated April 16, July 8, and December 2, 2004 granted thepreliminary injunction; suspended the approval of the Cencosud/Ahold transaction and prevented the parties from closing the transaction until the effective creation of the Antitrust Tribunal.

Although the Antitrust Tribunal has not yet been set up, on October 30, 2002, the Ministry of Production issued Resolution No 29/02 approving the Rules for the Public Contest to elect the members of the Antitrust Tribunal. The approval of the Rules was the first step taken to create the Antitrust Tribunal.

The first resolution, dated April 16, was based on the grounds that the Commission did not comply with the requirements of the Antitrust Law and the former Antitrust Law No 22,262. The Federal Judge stated that (i) the lack of creation of the Antitrust Tribunal almost 5 years after its enactment was a non-compliance with the Antitrust Law; and (ii) the lack of quorum and majorities to meet and reach decisions by the Commission (only 2 members from 5 were in office).

Thus the Federal Judge decided that the requirements to issue a preliminary injunction were satisfied (danger in the delay, likelihood of the applicable law and sufficient bond). The Commission and the Secretary of Technical Coordination of the Ministry of Economy had to adjourn their review of the economic concentration until the injunction is finally decided.

In June 2004 the Ministry of Economy appointed a new member to the Commission and it therefore continued with the analysis of the transaction. This appointment resolved one of the matter mentioned by the Federal Judge in its first decision and also lead the Commission to interpret that the decision did not have more effects and that it could continue analyzing the transaction.

The second decision dated July 8, 2004 highlighted that “even with the time passed, the Antitrust Tribunal has not yet been set up. The premises of the Antitrust Law are to protect the rights of the citizens and to stop any economic concentration that may be against the general interest.Any transaction that takes place in Argentina must be analyzed through a procedure controlled and coordinated by agencies created by a law so that the economic concentrations do not affect the general interest.”

This decision stated that the Executive must set up the Antitrust Tribunal and by delaying its creation it is not complying with an obligation arising from a Congress law. This decision ratified the terms of the previous one and again suspended the Commission’s analysis of the transaction.

As Section 8 of the Antitrust Law authorizes the parties to notify any economic concentration after the transaction has been closed, Cencosud and Ahold decided to close the transaction on November 1, 2004.

However, on December 2, 2004 the Federal Judge issued a new resolution broadening the terms of the preliminary injunction and stating that the parties were not authorized to close the transaction according to the terms of the preliminary injunction. This decision was later ratified by the Court of Appeals (December 23, 2004).

As a consequence, the transaction mentioned is still pending until the Federal Judge resolves the definitive injunction.

An outstanding transaction involving more than US$ 350 million and with an impact throughout Argentina has been suspended for the potential effects in a specific geographical area (certain markets in Mendoza) and certain products (agricultural products). The argument for suspension was the lack of creation of the Antitrust Tribunal even though the Antitrust Law specifically provides that, in the interim, the Commission will be in charge of the Antitrust Law’s enforcement. The decision advances over the powers of the Executive (i.e. the formation and appointment of the Antitrust Tribunal members), violates private property rights and may affect future merger and acquisition transactions. This same argument may be used in the future to delay other merger and acquisition transactions.

Also, the decision was taken in an injunction or also known as “amparo” (an extraordinary proceeding with limited legal defenses for the defendants) that gave plaintiff (a non-profit organization with small net worth) the possibility of obtaining a preliminary injunction without a bail bond and ex-parte (“inaudita parte” or without the defendant’s participation).

As explained above, until the Antitrust Tribunal is formed, the Antitrust Law is applied and enforced by the Commission, which is legally entitled to enforce its provisions during the transition period until the Antitrust Tribunal is created.