The respondent, a Brazilian company, appointed the claimant, an Argentinian company, as the exclusive distributor of its products in Argentina. The claimant accused the respondent of unlawfully terminating the distribution agreement and sought damages for the considerable investment it had made in creating industrial facilities and setting up a distribution network. The respondent rejected the claimant's allegations and argued that its claims were time-barred. The arbitral tribunal found that, although both parties had committed breaches, the existence of a non-compensation clause in their agreement prevented them from recovering damages. The distribution agreement contained a clause stating that it was governed by the internal substantive law of Brazil.

La défenderesse, une société brésilienne, avait désigné la demanderesse, une société d'Argentine, comme distributeur exclusif de ses produits en Argentine. La demanderesse accusait la défenderesse d'avoir indûment résilié le contrat de distribution et exigeait des dommages-intérêts du fait de ses importants investissements dans la création d'usines et la mise en place d'un réseau de distribution. La défenderesse rejetait les allégations de la demanderesse et faisait valoir que ses demandes étaient frappées de prescription. Le tribunal arbitral a conclu que, bien que les deux parties aient commis des manquements, l'existence dans leur contrat d'une clause de non-indemnisation leur interdisait de réclamer des dommages-intérêts. Le contrat de distribution contenait une clause stipulant qu'il était régi par le droit matériel interne du Brésil.

El demandado, una empresa brasileña, designó al demandante, una empresa argentina, como distribuidor exclusivo de sus productos en Argentina. El demandante acusó al demandado de poner término al acuerdo de distribución de forma abusiva y solicitó una indemnización por la considerable inversión que había realizado para construir las instalaciones industriales y crear una red de distribución. El demandado rechazó las alegaciones del demandante y sostuvo que sus reclamaciones habían prescrito. El tribunal arbitral llegó a la conclusión de que, aunque ambas partes habían cometido infracciones, la existencia de una cláusula de no compensación en su acuerdo les impedía recuperar daños y perjuicios sufridos. El acuerdo de distribución incluía una cláusula estipulando que el mismo estaba regido por las normas del derecho material interno de Brasil.

'VII. Decision

VII.1 Preliminary issues

206. [Respondent] has requested that the Arbitral Tribunal adjudges and recognizes the time barring of [Claimant]'s claim to void the Distribution Contract, on the grounds of defect of will. The Arbitral Tribunal decides that there are no grounds to consider that any misrepresentation has occurred prior to the execution of the Distribution Contract. In fact, [Claimant] did not allege that it had been coerced or induced to accept any clause against its will. Actually, [Claimant] indicated that [Respondent] imposed some clauses, which were accepted as a consequence of intense negotiation. The documents and the depositions taken before this Arbitral Tribunal confirmed that the parties were fully aware of the consequences of their offers and acceptance, as they were assisted by lawyers during those negotiations. Such circumstances were taken into account by this Arbitral Tribunal in the interpretation of the Distribution Contract. Therefore, the Arbitral Tribunal decided that there are no grounds for a relief related to annulment of clauses based on error of intention, bad faith or coercion, neither on its statute of limitation.

207. [Respondent] argued that the statute of limitation of [Claimant]'s indemnity claim has expired on January 12, 2006, pursuant Article 172, sub-item I, of the 1916 Brazilian Civil Code. However, [Respondent] did not dispute the fact that it has received the notification of this arbitration commencement before the alleged time barring deadline. Moreover, the Secretariat of the ICC Court acknowledged the receipt of [Claimant]'s Request for Arbitration on December 28, 2005. With due respect to [an expert]'s legal opinion brought to Arbitral Tribunal by [Respondent], stating that [Claimant] should have filed for a previous judicial protest to interrupt the occurrence of the statute of limitation, it is clear that such measure was not necessary, once [Claimant] has timely filed its Request for Arbitration, according to the terms of the Distribution Contract arbitration clause. It must be clarified that the ICC Court was duly empowered to receive the Request for Arbitration, while this Arbitral Tribunal was not formed, to act as a convenient forum for the dispute, in accordance with Article 21 of Brazilian Arbitration Law.

208. The arbitration clause implies the waiver by the parties of the judicial action. It grants jurisdiction to a private system of resolution of disputes, what [sic] means that any act aiming to that purpose shall be conducted by the institution elected by the parties. The Brazilian Civil Procedure Code states in Article 267, nr. VII, that a lawsuit shall be dismissed without decision on the merits if the parties are subject to an arbitral convention, which includes an arbitration clause (Article 3rd of Law 9.307/96). Therefore, the procedure law recognizes the full effect of the arbitration clause. On the other hand, the Brazilian Civil Code governs the matter of statute of limitation (time barring) and rules, in Article 202, that it may be interrupted by a Court decision determining the summons of the debtor or by any other judicial act aiming to evidence the default of the debtor.

209. In both cases, as mentioned by law, some understand that the only means to interrupt the accrual of the statute of limitation would be through an act of a judge, that is, by the intervention of the judiciary. Such understanding, however, does not apply when the parties are subject to an arbitral convention, such as a clause of arbitration, in which they have deferred to a private institution the authority to institute an arbitral tribunal, even against the wish of one party. That is the case of the Rules of Arbitration of ICC, chosen by the parties to resolve their disputes. If a party has, before the final term of the statute of limitation, initiated a private procedure of arbitration in the chosen institution, such act shall be considered sufficient and effective to reach the same goal of the judicial act; in summary, an act filed with the proper private authority-as elected by the parties-aiming to institute the agreed procedure to solve a dispute existing between them.

210. A final point should be highlighted. The interruption of the accrual of the statute of limitation implies a positive act of the claimant that evidences that it is active in pursuing the obligation due by the respondent. And such an act in case of arbitration is the request for the institution of the procedure. In addition to that, the only case in which the intervention of the judiciary is mandatory in arbitration occurs when a measure of coercion or a provisional measure are required prior to the institution of the arbitration procedure.

211. Hence, the Arbitral Tribunal decides that [Respondent]'s request of recognition of time barring shall be denied.

VII.2 Merits

VII.2.1 Non-compensation clause

212. The [examination] of the merits requires a previous consideration of the non-compensation-clause agreed by the parties which would hinder any of them to ask for compensation based on any ground.

213. The non-compensation clauses are valid under the Brazilian law. The parties can waive any indemnification right since the legal provisions on this matter are not mandatory. To this extent, the parties are allowed to validly limit or exclude a civil liability based on contractual breach. That conclusion is grounded on reliable doctrine of Brazilian authorities and on judicial precedents,1 what [sic] is also ratified by the legal opinion . . . presented by [Respondent] in this proceedings.

214. The non-compensation clause is a contractual provision meant to avoid indemnification for breach of contract obligations. It shall apply to extra-contractual liability derived from malicious fraud (dolus) or gross fault (culpa grave), since in this matter the parties cannot contract. In the proceedings of this arbitration the Arbitral Tribunal decides that, except from ordinary contractual fault by both parties, it has not been evidenced the existence of malicious fraud or gross fault by neither of the parties, nor by [Respondent], neither by [Claimant].

215. However, the application of the non-compensation clause must comply with the strict terms of the agreement that has provided for the non-compensation right. In this case, the limitation of liability is governed by clause 18.1 which reads:

216. "18.1-In no event shall the Supplier be liable to the Distributor for loss of profits, loss of goodwill, loss of use or any kind of damage whatsoever, whether direct or indirect, arising out of or in connection with this Contract.

Further, the Supplier shall not be liable to the Distributor for compensation in case of termination in accordance with Article 19.2 or 20 and the Distributor hereby expressly waives any right to compensation to which it may be entitled under any law or regulation in force in the Contractual Territory relating to such terminations including, but not limited to general compensation for severance of the Distributor and/or investments made by the Distributor and/or present or prospective sales of [Respondent] Products by the Distributor and/or establishment, development of maintenance by the Distributor of the [Respondent] Products business in the Contractual Territory."

217. The second part of the clause refers to the termination of the Contract and makes reference to Article 19.2 or 20. Therefore, the analysis of the application of the limitation of liability in the instant case shall take into account such Article, which first part reads:

218. "19.2-This Contract shall enter into effect on_________ and shall continue for an indefinite period. Either Party may terminate this Contract with or without cause at any time following the first anniversary date of the signing of the Contract by giving six (6) months prior Notice of Termination to the other Party."

219. The reading of such provision indicates that after the first anniversary of the Contract both parties would be allowed to terminate it, with or without cause, giving the other party six (6) months prior notice.

220. The Contract was executed on . . . 1999 and the termination has occurred in . . . 2000, . . . therefore, after one (1) year of the Contract anniversary, in accordance to the disposition above mentioned.

221. On the other hand, the Notice for the Contract termination sent by [Respondent] did not give [Claimant] the six-month prior period to termination as mentioned in Article 19.2, but only thirty (30) days.

VII.2.2 The reciprocal liability for termination of the contract

222. The present arbitration was requested by [Claimant] based on allegations of various breaches and violations of obligations and responsibilities incurred by [Respondent] under the Distribution Contract.

223. Although it did not last long, the Distribution Contract was sufficiently negotiated and discussed, allowing both parties to evaluate the risks and advantages of the future business relationship. It would not be reasonable to admit that [Respondent], a renowned multinational company, on one side, and [Claimant], that throughout this arbitration stressed its long entrepreneurial tradition, were not aware of the real circumstances that surrounded and preceded the Contract execution.

224. [Respondent] and [Claimant] headed towards their business goals while negotiating and executing the Distribution Contract. No one executes a contract just for the mere pleasure of exchanging wishful statements, but-on the contrary-bearing in mind specific goals, under which they reciprocally establish a relationship.

225. Agreements shall be dynamically interpreted in order to verify the real intentions of the parties to negotiate. The interpreter cannot only rely on the individual intentions of each party, though they are fundamental in the birth of the agreement. In fact, the most faithful and trustable interpretation of an agreement shall also rely on the "mutual intention of the contracting parties" (Brazilian Civil Code, Article 112).

226. The interpretation of the contractual relationship between [Respondent] and [Claimant] indicates that those parties had common and specific goals arising from their agreement. On one hand, [Respondent] was searching for an experienced distributor which would have a fair knowledge of the Argentinean market, thus increasing the sales of [Respondent]'s machinery. It must be reminded that [Respondent] was already operating in the Republic of Argentina through other distributors that were supposed to be discontinued. On the other hand, [Claimant] had some experience . . . within the same market and believed that, without much effort, it would adapt to the rigid conditions that [Respondent] used to request to its other distributors.

227. In 1999, [Respondent] decided to terminate its contracts with other distributors in the Argentinean territory. To replace them, [Respondent] decided to appoint [Claimant] as its exclusive distributor for its [products] in the Republic of Argentina. In this sense, [Claimant]'s assistance was thought to be essential to the rapid substitution of previous distributors. [Claimant], in turn, was promised, under the terms of the agreement, that it would be appointed as [Respondent's] exclusive distributor in the Republic of Argentina.

228. The business relationship seemed, from the beginning, highly rewarding to both parties, to the extent that the relationship was based on [Claimant]'s commitment to adapt to the conditions that [Respondent] requests to [sic] its distributors for the development of the Argentinean market and the qualities of [Respondent]'s products was already recognized in the same market.

229. As long as they are major companies in their market segments, it can be assumed that [Respondent] and [Claimant] adopted rational behaviors in the cost/benefit evaluation of their new business deal. In this scenario, each company should have adopted basic diligence of an average businessman in order to get to know with whom it was contracting and which were the actual capabilities of its counter party.

230. During this arbitration, in almost every petition of the parties and from most of the depositions taken from the parties and from their witnesses, it became clear that this business deal did not succeed because both parties either fail to comply with their obligations or neglected a fair level of commitment to such obligations.

231. While [Claimant] made some investments in installations, purchased equipments, maintained a network of distribution agents, trained some employees it already had engaged, [Respondent] was negligent in providing essential publicity material and documents that would have enabled [Claimant] to define and implement a consistent sales strategy and to register before the Argentinean relevant authorities to act as an official [Respondent] distributor. In addition, [Respondent] did not provide to terminate in due time the agreements already in force with other distributors on a reasonable period of time, failing to offer [Claimant] an exclusive distributorship condition, as it has promised in the Distribution Contract.

232. On the other hand, [Claimant] failed to put in place on due time the appropriate technical infrastructure to the distribution of products supplied by [Respondent] and to the after-sales service for said products, as specified in the Distribution Contract. Moreover, [Claimant] did not train technical personnel to devote its time exclusively to [Respondent]'s products. Instead, [Claimant] tried to improvise its facilities and operations originally conceived to render services to [products] other than [Respondent]'s. Finally, [Claimant] was not approved on [Respondent]'s Excellence Program. . .

233. Based on these facts, [Respondent] applied the sanction of warning, but [Claimant] did not adequately correct the defaults appointed. Subsequently, [Respondent] issued a termination notice for the Distribution Contract . . . Since this notice was based on alleged just cause, [Respondent] did not concede [Claimant] a reasonable period of time to wind down its activities and recover at least part of its investments. Such reasonable period of time was required by Article 19.1 of the Contract and by Article 473, sole paragraph, of the Brazilian Civil Code, which reads:

Article 473-The unilateral termination (of a contract), in cases allowed expressly or impliedly by law, produces effects after communication to the other party.

Sole Paragraph: However, if, considering the nature of the contract, one of the parties have made significant investments for its execution, the unilateral termination only shall produce effect after elapsing a compatible term with the nature and the amount of the investments.

234. As already pointed out, the parties agreed in Article 19.2 that such term for the termination of the Contract, with or without cause, was set in six (6) months and such term was not observed by [Respondent].

235. In light of the documents and allegations of the parties, the Arbitral Tribunal decides that the Distribution Contract was breached by both parties. During the performance of the Distribution Contract, none of the parties adequately fulfilled its obligations. Although both parties were determined to move forward with the distribution of [Respondent] products in the Republic of Argentina, none of them reached efficient remedy to solve the problems that constituted default in view of the provisions specified in the Distribution Contract.

236. The Arbitral Tribunal recognizes in this case reciprocal liability of the parties, derived from the existence of reciprocal fault relating to contractual performance. Regarding the performance of the contract, the Arbitral Tribunal decided that the faults of both parties are concurrent, accordingly none of the parties shall be entitled to indemnification from the other based on contractual breach.2

237. Despite such concurrent contractual performance fault, the Arbitral Tribunal decides that [Respondent] should be held liable for a fault relating to the termination clause, since [Respondent] did not grant to [Claimant] the six-month prior notice for the ending of the Contract, pursuant to what is set forth in Article 19.2 of the Distribution Contract.

238. In fact, in this case, the variety of causes to the failure of the business deal originally drafted by the parties makes it almost impossible to appoint which party breached first or more. Consequently, this Arbitral Tribunal understands that the "compensation of fault doctrine" is fully applicable. Carvalho de Mendonça taught as an example of "um caso característico da compensação da culpa, em que as duas ações se ilidem e nenhuma das partes pode contra a outra tirar vantagem da culpa que lhe é comum".3

239. Such doctrine is also recognized by Brazilian courts, as it can be understood from the decision rendered by the Brazilian Supreme Court, in 1981, in which Justice Rafael Meyer stated that "evidenciada a reciprocidade das culpas, na condução do contrato, uma parte não pode tirar vantagem contra a outra, importando em razão da compensação da culpa, rescindir o contrato, restabelecendo o 'status quo ante'".4

240. In light of the evidence presented in this arbitration and of the compensation doctrine above described, this Arbitral Tribunal decides about the relief sought by both parties based on the consequences of the reciprocal fault doctrine. On this matter, the Brazilian judicial precedents are oriented towards reestablishing, as much as possible, the prior situation held by the parties. Furthermore, it must be dismissed any attempt of unjust enrichment by means of contractual penalties. In the present situation, since it is not possible to reestablish the prior situation held by the parties, the indemnification claims shall be evaluated only if they do not cause the unlawful enrichment of one party [to the] detriment of the other. To sum up, the parties shall be liable for their faults without benefiting from the early termination of the Distribution Contract.

241. At first, none of the parties has the duty to indemnify the other party, in view of the non-compensation clause analyzed in the item VII.2.1 of this award.

242. However, as [Respondent] did not concede to [Claimant] the six-month term for terminating the Contract (Article 19.2), the Tribunal understands that [Respondent] should be held liable for having failed to give [Claimant] this six month prior Notice. Accordingly, [Respondent] should indemnify [Claimant] for such period of time.

243. Wherefore, this Arbitral Tribunal holds [Respondent] and [Claimant] jointly liable for the contractual performance breaches that led to the termination of the Distribution Contract, but, as [Respondent] did not give [Claimant] the six (6) month prior Notice for termination, understands that [Respondent] shall compensate [Claimant] accordingly.'

1
José de Aguiar Dias, Clausula de Não Indenizar, 4th Edition, Rio de Janeiro, Forense, p. 92/93; Antonio Pinto Monteiro, Cláusulas Limitativas e de Exclusão de Responsabilidade Civil,Editora Coimbra, p. 216.

2
The Brazilian doctrine prefers to speak in [sic] concurrent liability or concurrent causation instead of concurrent fault (cf. Sérgio Cavalieri Filho, Programa de responsabilidade civil, 7ª edição, Atlas, S. Paulo, 2007, p. 41 e 56; Caio Mário da Silva Pereira, Responsabilidade civil, 8ª edição, Forense, Rio de Janeiro, p . 83.

3
Carvalho de Mendonça, Doutrina e prática das obrigações, Rio de Janeiro: Ed. Forense, 4ª ed., 1956, t. II, p. 328.

4
Extraordinary appeal no. 93.045-SP, decided on September 8, 1981.