Gestión Digital – Forms of associations in Ecuadorian Public Procurement

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DATE: 2-10-19

CORRALROSALES IN THE NEWS: 

-Ricardo Mancheno

Ecuadorian legislation regulates the use of the association or joint accounts and the consortium as forms of associations for public procurement, which facilitates the participation of the private sector in business with the State.

As part of the development of commercial activities, it is common for natural and legal persons to use forms of associations that allows them to jointly and efficiently conduct businesses in the private and public sectors. A summary of the legal framework applicable to these forms for public procurement is presented below.

The law establishes as forms of association: the association or joint accounts, the consortium or consortium agreement; and, joint venture.

In the area of public procurement, the legislation only admits the use of the association and the consortium. The latter is the most widely used in practice.

The association or joint accounts defines the Corporate Law as a contract whereby a merchant gives one or more persons participation in the results of one or more operations or of all their commercial activity, in exchange for a certain participation or contribution. The management and accountability of the business is the responsibility of the person in whose business third party participation occurs; the law grants the participants ample freedom to agree on the terms of the association.

The consortium or consortium agreement is a contract provided in the Commercial Code, whereby two or more people, natural or legal, are associated with the purpose of participating in a contest, project or contract, or in several at the same time. Associates do not lose their independence and autonomy. Participants in a consortium respond jointly and severally for the obligations acquired by the consortium. In other laws the consortium is usually called “temporary union.”

For contracting with public entities, the law provides that the consortium agreement must be constituted by public deed and that, therein, regardless of other provisions or regulations of the relations between the participants, the declaration of their joint and several liability for the fulfillment of its obligations derived from the contract with the public entity. In addition, you must obtain the Unique Registry of Suppliers, RUP.

To participate as an offeror in the pre-contractual stage of a public procurement procedure, the law allows the presentation of a partnership or consortium commitment, which must also meet specific requirements such as the declaration of the obligation to constitute the consortium previous to the subscription of the respective contract.

The association and the consortium have no legal status of their own. However, for tax purposes they are considered as independent subjects of their members. As such, they must obtain their own unique taxpayers registry or RUC and keep their accounts as if they were a company.

Each of the participants is jointly and indivisibly responsible for fulfilling the obligations arising from the contract. In this sense, public procurement regulations explicitly ratify that the participation in an association or a consortium does not make up for the loss of the legal status of each of the participating suppliers, since the association or consortium does not constitute a different legal entity. In this way, the same regulations provide that the responsibility for the execution of the contract is indivisible and complete for the associates. In order to determine the experience and compliance of the consortiums in previous contracts with the public sector, the contracting entities must consider the sum of the experiences of the participants when evaluating the offers.

The association or consortium cannot be dissolved or terminated by the will of the contracting parties, nor may it change its conformation until the end of the contract, unless expressly authorized by the contracting entity

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The distribution contract: competition issues and its regulation in the new Code of Commerce

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From 1997 and until the Code of Commerce came into effect last May 29, 2019, the distribution contract did not have a specific regulation. It was governed by the general rules applicable to trade acts, contracts and regulations on jurisdiction.

On December 31, 1976, the Law for the Protection of Agents or Distributors of Foreign Companies (Distributors Law) was enacted, which regulated the commercial relationship between an entity not based in Ecuador and a person – be it natural or legal- designated as representative, agent or distributor. This Law mainly provided a special protection regime for the distributor / agent. Thus, among the most relevant provisions included, the grantor was not authorized to unilaterally terminate the contract even by expiration of the term established in the contract itself, save for specific causes established in the Distributors Law, which in turn had to be qualified by the competent judge, and established a method of calculating large compensation for damages.

On July 5, 1996, the Distributors Law was amended, fundamentally limiting the compensation amount, and on September 19, 1997, it was repealed. Even so, the rights and obligations born while the Distributors Law was in force were maintained. The Antitrust Law, enacted on October 2011, introduced concepts such as exclusivity – of products, territories, customers or types of customers – that a priori seemed to be in conflict with the free competition regime, which required a robust support – from the economic and market techniques – that would legitimize its stipulation.

Since May 29, 2019 the new Code of Commerce (Code) clarified the picture, clearly tracing the rules governing the distribution contract. The most prominent are:

  • The distribution contract is the authorization in which a party called the grantor or principal confers on another party called concessionaire or distributor the possibility of selling products, providing services, or a combination of both, in a given territory.
  • In general, it leaves to the will of the parties the conditions of these contracts, such as: exclusivity of territory, exclusivity of product, minimum volumes and periodicity in purchases, among others; and establishes rules that will be applied in the absence of stipulation by the parties or that are contrary to the Antitrust Law.
  • Establishes the obligation of the supplier to deliver commercial and technical information necessary for the best distribution of the goods or services stipulated in the contract.
  • Allows the supplier to make direct sales without the participation of the distributor, unless otherwise agreed.
  • Prohibits the supplier from limiting the possibility of the distributor to make sales, through the internet, except for reasons of public health, consumer safety or legal prohibition.
  • Determines that, if a term of validity is not established, distribution contracts are considered as indefinite and may be terminated by either party, prior a 90-day notice. The Antitrust Law states that termination without a cause with no prior 30-day notice, could be considered as abuse of market power in an economic dependency relationship.
  • The serious or repeated breach of the contract that is not remedied within 15 days from the notification of the breach, will result in its termination, and the compliant party will be entitled to compensation for damages.

Ana Samudio
Senior Associate at CorralRosales
asamudio@corralrosales.com

El Economista – What do companies seek in their legal service provider?

legal-service-rafael-rosales-el-economista

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DATE: 23-09-19

CORRALROSALES IN THE NEWS: 

-Rafael Rosales

MEDIA: El Economista

Our Partner Rafael Rosales published a detailed article in the Spanish specialized medium El Economista, in which he analyzes the characteristics and needs of companies when they seek a legal service provider. The development of technological tools has led to everything going faster, and therefore, decision making by executives must be at full speed. Moreover, the advice should provide that speed.

“Far is the time when the responses of the offices to the inquiries of their clients were broad legal disquisitions. Executives have no interest in knowing the legal texts and the respective doctrine, nor the time to review extensive documents. Therefore, concise and easy-to-read reports and responses, without excessive citations from authors and jurisprudence, are highly valued,” says Rosales in his article.

One of the key points highlighted by our Partner is the communication between the two parties. Companies expect a constant flow of communication with their legal advice, and in addition to that, they must be proactive. “It is very important to participate in the development of the client’s business and even help in the execution and generation of new projects, in short, to be an active part of the company,” he adds in the article.

Rosales also points to billing as one of the factors to consider. Legal advice is not exempt from the tight budgets that companies manage and therefore, they must have an added value to offer their clients. “Beyond the high quality of the advice and the recognition of the client, receiving an unexpected invoice will cause discomfort in the consultant, who may even find other alternatives for later occasions,” says our Partner Rafael Rosales.

If you want to read the full article, click here

Delayed or Canceled Flight? What the passenger does not know

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Your luggage was checked, you boarding pass is at hand, you pass through the security filters, waiting for the call to board, and suddenly, you look at the information panel in the waiting room and see the message nobody likes to get: “delayed or canceled flight”.

Although the passenger does not know the causes of flight delays and cancellations and everything is in apparent normality at the airport, the operation of a flight implies the existence of several factors that must be perfectly aligned.

The following are the most common causes of flight delay or cancellation.

1.- Weather conditions

Heavy rains and snowfall during the winter months are well known; these can delay ground operations and hinder landing or take off maneuvers. The sunny summer arrives and the season of greatest passenger traffic begins: family vacations, meetings with friends, sunny days to enjoy, and a climate that would seem pleasant to fly. However, the combination of high temperatures and summer winds can surprisingly result in a storm that may result imperceptible at ground level.

During the summer months, the hot air rises and interacts with the cold air that is in the upper atmosphere. This mixture causes water vapor to condense and storm clouds with lightning to form at great heights; the lighting cannot be seen from the surface.

In general, airlines coordinate with Air Traffic Control if a change in landing or take-off routes is needed to avoid these thunderstorm clouds. But the operation could continue to represent a risk for ground workers who are on the platform carrying out activities prior to the departure or arrival of flights, such as aircraft fueling, luggage transfer, inspection and cleaning of aircrafts, etc.

Then, due to weather changes, delays or cancellations of scheduled itineraries occur. In these cases, the airline is exempt from the obligation to compensate passengers for the damages that they could have suffered as established in the regulations of “Provisions for Compensation to Users for Flight Delays”, because the facts are not attributable to the company.

2.- Operational modifications

For the optimization of operations and greater efficiency in fuel consumption, an aircraft may be scheduled to fly to several destinations. In this case, a delay in another station could cause what is called “drag delay”; that is, a problem in another airport could result in a delay in the operation of the next flight in some other point.

Likewise, there are operating conditions that must be met to ensure flight safety, such as checking that the crew has complied with the mandatory rest time stated in the aviation technical regulations or ensuring that the members responsible for the flight operation are fit to embark. It is uncommon, but there have been cases in which there is an unforeseen health problem in an officer or senior cabin crewmember, which represents a decrease in the crew that is impossible to cover immediately.

Ecuadorian aeronautical regulations control the operation in cases of early departure or delays in the time of takeoff / landing. Resolution 120/2017 determines the obligation for the airline to notify, with due justification, any change in the time of departure and arrival, applying international processes and standards.

Unscheduled Maintenance:

The airlines comply with an aircraft maintenance schedule, previously approved by the local Aeronautical Authority, who, as the controlling body, will verify compliance. These are called scheduled maintenance. But aircrafts are machines and therefore susceptible to unforeseen damage, which may cause inevitable delays in the operation of a flight. Each technical problem must be documented and recorded in accordance with the protocol established in the manuals of each company; this is done to ensure the safety of passengers, crew and ground personnel.

The airlines that operate in Ecuador have programs, policies and manuals that govern each operational process of their flights. In the case of international airlines, these procedures are subject to a certification process carried out by the Directorate General of Civil Aviation based on the Technical Aviation Regulations, known as RDAC. For international operators it is the RDCAC 129 and for domestic airlines the RDAC 121.

Airlines publish constant and first-hand information in their social networks when events like these happen, and seek to offer the passenger immediate solutions, to the extent possible, so that they arrive safely at their destination.

Finally, for airlines, the security of their operations will always come first. Therefore, when conditions are not safe for a flight, delays and cancellations, even if they are annoying for users, are unavoidable for the benefit of the passengers themselves, crew, and the ground workers.

Verónica Olivo
Associate en CorralRosales
volivo@corralrosales.com

Ecuadorian Intellectual Property office upholds the distinctiveness of the three-dimensional trademark registered by Crocs, INC.

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Through Resolution No. OCDI-2019-0618[1], the Ecuadorian Intellectual Property Office confirmed that the design of CROCS footwear is capable of being recognized by consumers, and also allows consumers to differentiate it from the products of competitors, since it has its own special elements that give the product a different appearance, and is not common or ordinary.

With this decision, the distinctiveness of the three-dimensional design of CROCS footwear in Ecuador was upheld, and it is confirmed that only CROCS, INC. may market goods under such design, having the exclusive right to prevent third parties from using and marketing the same or similar goods.

In 2015, CROCS, INC. obtained the registration of the mark THREE-DIMENSIONAL DESIGN (3D BAYA SHOE DESIGN) to protect “footwear”.

The three-dimensional mark has its own characteristics, which differentiate it from the traditional denominative, figurative and mixed mark, since with this specific type of marks, an object that occupies a volume in space is protected; that is, it is the shape of a product or its packaging. Therefore, the distinctiveness of this type of marks rests in the shape and relief as a whole, among other distinctive elements that are added into its configuration.

In 2017, JHON ALBERTO FIGUEROA VIVANCO applied to the Ecuadorian Intellectual Property Office for the nullity of the mentioned registration, claiming that it was a generic shape for footwear and therefore not for exclusive appropriation by one entity. Additionally, the claimant pointed out that the design granted a functional or technical advantage to the product, and so could not be protected as a trademark according to the law.

Article 135 of Decision 486 of the Andean Community establishes that the following signs cannot be registered as trademark:

“(…)

  1. those that lack distinctiveness;
  2. those that consist exclusively of usual forms of the products or their packaging, or of shapes or characteristics imposed by the nature or the function of the product or service in question;
  3. those that consist exclusively of a shape or other elements that give a functional or technical advantage to the product or service to which they apply; (…) ”

During the proceedings, CROCS, INC. was able to show that the contested registration did meet the requirements to be considered a three-dimensional design, even filing evidence of registrations obtained over the same design in several other countries, in which, as in Ecuador, the distinctiveness of their unique designs had been recognized.

With regard to the functional advantage claimed by the plaintiff, the IP Office determined that the arbitrary elements of the design are not dictated by function, since the exclusion of such shapes, reliefs, crevices and holes does not prevent the natural use of the product.

Katherine González H.
Associate at CorralRosales
katherine@corralrosales.com


[1] Proceeding No. 17-1679-RV-2S dated 18 July 2019.

WTR Dialy – Ecuadorian IP Office deals blow to parasitic trademark applications

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DATE: 30-08-19

CORRALROSALES IN THE NEWS: 

-Ian Wall

MEDIA: WTR Dialy

Our Associate Ian Wall has published an article in WTR Daily explaining and reflecting on the resolution of the Ecuadorian IP Office in which they accepted the opposition filed by the cosmetic brand Huda Beauty against the application for an identical mark. As explained by Ian, in addition to the rejection of the application, the Ecuadorian IP Office was responsible for reviewing the WIPO online trademark database to verify the right in the opponent’s country of origin, and to accept the aforementioned online results as evidence of such right.

“Ecuador’s trademark system is based on the rst-to-le principle. This means that simply using a mark in Ecuador confers few or no rights. The problems faced by brand owners in Ecuador that fail to secure registration of their trademark rights is compounded by the fact that the authorities have been slow to recognise even famous marks that are not yet in use in the country”, tops the article Wall..

This decision represents a relaxation of the evidentiary requirements and demonstrates a proactivity rarely seen from the Ecuadorian IP Office. This suggests the willingness of the Ecuadorian trademark authorities to protect large brands against applications for parasitic marks.

“The IP Oce incorrectly failed to acknowledge the priority claim and proceeded to reject the opportunistic application on the basis of Article 6 quinquies of the Paris Convention. More importantly, the IP Oce took it upon itself to review the online WIPO trademark database with regard to the opponent’s country of origin right and to accept the online entry as evidence of this right”, as explained by Ian.

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Recognitions: Chambers and Partners & LACCA

CorralRosales has been recognized once again as a leading firm in Ecuador according to the prestigious international legal directory Chambers and Partners and the Latin American Corporate Counsel Association (LACCA).

The English legal directory Chambers and Partners has recognized CorralRosales in the practice areas listed below:

  • Intellectual Property (Band 1)
  •  Corporate/Commercial Law (Band 2)
  •  Competition Law (Band 2)
  • Labour Law (Band 2)
  • Dispute Resolution (Band 3)

In this latest edition of Chambers and Partners, our Partner, María Cecilia Romoleroux renews her national leadership as an expert lawyer in the practice of Intellectual Property. On the other hand, our Partner Xavier Rosales, for the second year in a row is recognized as the only Ecuadorian lawyer to obtain Band 1 for the corporate practice. Also, he has been recognized as one of the best lawyers in competition law obtaining in this way Band 2 in this area. On the other hand, our Partners Edmundo Ramos and Santiago Palacios maintain their position as leading lawyers in the areas of labour law and dispute resolution, respectively. While our Partner, Andrea Moya, leader of the of the firm’s tax area, stands out on the board less than a year after of her appointment as a partner of the firm. Finally, our Senior Associate, Martha Villagomez, stands out as one of the best senior lawyers in Ecuador’s labour practice.

Finally , our Partners, Xavier Rosales and Maria Cecilia Romoleroux have been again highlighted as lawyers of reference in Ecuador, according to the latest edition of the prestigious Latin American Corporate Counsel Association. Once a year, the members of this Association (top general counsels of the region) nominate those who consider the best lawyers in their respective specialties.

Evolution of the Legal Sector in Ecuador 2008-2018

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DATE: 10-08-19

CORRALROSALES IN THE NEWS: 

Francisco Corrales

MEDIA: Idealex

To better understand the legislative evolution in this decade, it is necessary to take into account that the presidency of the Republic was exercised by a single character from 2007 to 2017: Rafael Correa, an unprecedented case in Ecuadorian history. There have been presidents who have exercised the presidency for a total of more than 10 years, but not continuously.

In 2008 a new Constitution, the twenty-second, was issued for which a Constituent Assembly was convoked. Its mission was to draft a political letter which to enter into effect required the favorable vote of the majority of citizens expressed in a referendum convoked for the effect. President Correa had an absolute majority in the Assembly and managed to have the 2008 Constitution built to suit his political project: The Ecuadorian version of the so-called 21st Century Socialism. The main ideologues of this movement who played the same role in the constitutions of Venezuela and Bolivia were two Spanish professors belonging to the extremist group “Podemos”.

The 2008 Constitution that currently governs the country, with 23 modifications introduced in three separate occasions, consists of 444 articles, 30 transitional provisions and a transition regime developed in 30 additional articles. The constitution has 52,831 words, compared to that of 1998 with only 29,162 words. It is a convoluted, contradictory, incoherent, and regulatory political letter which strengthens the presidential power to the extreme. In addition, it was shielded in such a way that its reform requires long procedures along with qualified majorities and for certain matters even the convocation of a new Constituent Assembly.

To consolidate the indefinite political power of the XXI Century Socialism sought in Ecuador during the period under review, large numbers of codes and laws were dictated; most of them penned by the presidency of the Republic. There is hardly any law whose initiative came from the Legislative Assembly itself. The assembly members of the political group led by President Correa were an absolute majority which allowed them, without the need for agreements or alliances, to approve as many laws as they considered necessary to suit their interests.

Among others, the following laws were issued: Organic Monetary and Financial Code, Commercial Code, Organic Code of Territorial Organization, Autonomy and Decentralization, Organic Code of Judicial Function, Administrative Organic Code, General Organic Code of Processes, Code of “Ingenios” (Organic Code of the Social Economy of Knowledge, Creativity and Innovation), Organic Law of the Legislative Function, Law of Jurisdictional Guarantees and Constitutional Control, Organic Law of the Council of Citizen Participation and Social Control, Organic Law of Higher Education, Organic Electoral Law and Political Organizations, Organic Law of Ombudsman, Organic Law of Land Transportation, Traffic and Road Safety, Organic Law of the National Public Procurement System; To this extravagant number of codes and laws, we must also add reforms of all kinds due to the fact that 11 reforms were issued in the period under review only with regard to tax laws.

Therefore, it is correct to affirm that between 2007 and 2017 Ecuador endured a legislative incontinence of new laws, reforms and counter reforms that have thwarted the institutional and legal structure of the Republic. The vast majority of members from this movement in the government have had the sole goal of strengthening the presidential power and facilitating the fulfillment of the political objectives of the group that held power, that is, its indefinite command of the Republic. This situation has become such a problem that several private and public sectors have suggested that the least traumatic way to end the current legal chaos would be to convoke a referendum in which the people would repeal the 2008 Constitution replacing it with the 1998’s. Therefore, the legislature would adapt the current secondary laws to the constitutional norms of 1998.

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Update of customs regimes in the Andean Community

The Andean Community Commission approved Decision 848, through which the alignment of Customs Regimes is updated to facilitate foreign trade operations in the region.

With the purpose of simplifying the operations carried out in the customs of Bolivia, Colombia, Ecuador and Peru, countries member of the Andean Community, the regulatory alignment was updated on the following topics:

– Form and deadlines for submission, transmission, correction and modification of the cargo manifest.

– Authorization for the creation of temporary deposits and term of permanence of merchandise.

– Opportunity and deadlines for submission, correction and documents that accompany the customs declaration of goods.

– Presence of the declarant in the physical examination.

– Deadlines for:

  • Re-importation in the same State;
  • Temporary admission for re-export in the same State;
  • Temporary admission for active improvement; and
  • Final export.

– Incorporation of the concept of Special Economic Development Zone: A duly delimited part of the national territory of each Andean Community Member Country, in which the goods entered there, are considered as if they were not within the community customs territory, with respect to import duties and taxes along with surcharges that may apply.

Decision 848 repeals Decisions 671 and 716, and entered into force on Friday, July 26, 2019, date of its publication in the Official Gazette of the Cartagena Agreement No. 3699. However, in accordance with the Fifth Final Provision, this norm will enter into force in the Republic of Colombia forty-eight (48) months following its publication date.

On the other hand, through Decision 846 of July 26, 2019, the Andean Community Commission stipulated that free zone products or merchandise will benefit from the tariff relief stipulated in the Cartagena Agreement Release Program, as long as they comply with the rules of origin of the Andean Community.

Gustavo García
Attorney of Counsel at CorralRosales
ggarcia@corralrosales.com

The scope of protection of a brand facing the discretion of the Intellectual Property Authority. Case PROZOL vs. PREZOIL.

The Ecuadorian Intellectual Property Office rejected an opposition filed by the owner of PROZOL, thereby allowing the registration of the PREZOIL, based on the finding that the respective goods were not the same.

On its way to reaching its conclusion, the IP Office’s reference was information found on the opponent’s web page, instead of the information contained in the registration certificate issued by the same authority.

Any sign that is capable of distinguishing goods or services in the market can be registered as a trademark.  The protection that such registration provides is directly related to the goods or services covered.

Ecuador aheres to the International Classification of Goods and Services for the Registration of Marks —Classification of Nice—, which serves to differentiate and to delimit the protection of a mark according to the class in which the specific applied-for goods or services are included.

The scope of protection of a registration is directly related to the goods or services it covers. Such relationship is so fundamental that a specific requirement with which every application must comply, in accordance with Decision 486 of the Andean Community Commission, is to list the specific goods or services that will be protected and the corresponding international class.

The opposition filed by the owner of the PROZOL mark:

The company IMPORTADORA PEREZ JURADO ASOCIADOS CIA.  LTDA. applied for the registration of PREZOIL at the Ecuadorian Intellectual Property Office. Subsequently, PROTÉCNICA INGENIERÍA S.A. filed an opposition claiming that the similarity with its PROZOL mark would confuse consumers and cause a risk of association.

In this case, the Ecuadorian IP Office expressly recognized that the goods specifications were similar. However, it decided to reject the opposition, since it did not consider that there was a relationship between the goods, despite relating to the same international class, and despite the fact the PREZOIL application included goods specifically protected by PROZOL, as shown in the following table:

Brand International class Protected products
PROZOL (registered) 01 Products: Chemical products for the industry.
PREZOIL (requested) 01 Products: Chemical products for industry:

– Brake fluids

– Liquids for hydraulic circuits

– Coolants

In its analysis, the Office did not take into account the information contained in the registration certificate for PROZOL, which clearly identifies the goods for which the registration was requested and obtained.  Rather, the IP Office surprisingly and in direct violation of the Andean legislation and jurisprudence, decided that the rights in PROZOL were only applicable to one type of product: “emulsifying agents for pastry.”

To reach this conclusion, the Intellectual Property Authority reviewed PROTÉCNICA INGENIERÍA S.A.’s web page and considered that the information obtained from that source was sufficient to determine that the product above (emulsifying agents for pastry) was the only one protected by the PROZOL mark, completely omitting the considerations above on the scope of protection of a registration.

Within the resolution at issue, there was no analysis that justifies the legal criteria used to determine that the scope of protection of a trademark falls solely on a product mentioned on a web page; neither does it explain why the goods protected by the PROZOL registration were not taken into account, in accordance with the registration granted by that same authority.

This result could cause a series of adverse effects and generates legal uncertainty for trademark owners, since if the position stated in the case examined stands, it would not be possible to have assurance about the scope of protection of a registration.  In an even more delicate scenario, it would imply that the Ecuadorian IP Office could consider that some goods are outside the protection of a registration without greater support than the information that appears on the Internet or any other sources outside the procedure.

Katherine González
Asociatte at CorralRosales
katherine@corralrosales.com


[1] Article 139, literals f) & g) form the 486 decision of the CAN Comission.
[2]  OCDI-2019-524 resolution dated june 10th 2019. Case file: 15-5435-RA-1S-RR-2017.