Date: Final Award, 2015

Origin of the parties: North America, Europe

Applicable substantive law: Italian law

F. Brief chronology of the main relevant facts

47. A brief chronology of the main relevant facts providing a general overview of the background of the case is set out hereinafter.

48. Additional factual details will be provided and dealt with to the extent necessary when analyzing the claims, counterclaims and pleas of the Parties.

1. Basic Cooperation Agreement … ("BCA")

49. After having previously cooperated for a number of years … on 30 June [Year Y] the Parties entered into the BCA …

50. Under the BCA, Claimant was to be Respondent's sole and exclusive distributor of certain products within the Exclusive Territory (as therein defined).

51. The BCA was to be in force for 5 years, to be automatically renewed for 2 years and so on for subsequent terms of 2 years, unless either Party notified the other of its intention not to renew the BCA at least 12 months prior to the expiry date.

…..

2. Customs duty …

3. Respondent's notification of its decision not to renew the BCA and its offer to discuss future cooperation

58. After what was perceived by Respondent as Claimant's refusal to give a detailed answer to Respondent's analysis of the current relationship and situation … on 27 June [Year Y+10] Respondent notified Claimant that it did not intend to renew the BCA …

59. At the same time – by an e-mail accompanying the notice letter … – Respondent pointed out that:

This does not reflect a decision to stop the business cooperation, but rather to allow the flexibility of changing it, as per agreement.

...

There are some possible ways forward:

1. To continue the cooperation using this agreement

2. To continue the cooperation using a modified agreement, or

3. To stop the cooperation ...

60. An unsuccessful meeting held … in July [Year Y+10] did not help clarifying the situation.

4. New warehouse …

61. It was against this background that Respondent put into operation a new warehouse … with shipments to the new location starting in [Year Y+11].

62. This project had been discussed with Claimant already in [Year Y+7], but at that time was not pursued as a priority. The minutes of a meeting that took place [in Year Y+7] show that the Parties' evaluations of the pros and cons of a new logistic platform in Northern Europe did not match …

63. Anyhow, the minutes of a meeting [in Year Y+9] (the content of which has not been questioned by Claimant…) clearly record Respondent's decision to go ahead …

64. In addition to apparent advantages in terms of transport costs and time savings, the "managerial depth" issue (i.e. the fact that Claimant had so far failed to strengthen and rejuvenate its management; see Witness testimony…) at [Claimant] is mentioned as one of the reasons for this move on the part of Respondent.

65. There is no trace on docket of any objection by Claimant at that later stage.

5. The dispute on payment terms and claimant's announcement that - pending the arbitration it had just initiated - it would not pay respondent's outstanding invoices

66. Discussions on payment terms date back to at least [Year Y+2], with Respondent complaining about Claimant allegedly being behind in payments ...

67. While Art. 12 BCA provides for a payment term of 120 days, in practice the invoices issued by Respondent were paid by Claimant within 148 days (average…).

68. At the beginning of [year X+11], in a climate of increasing tension between the Parties, Respondent sent a number of past due invoice notifications insisting on certain allegedly overdue payments …

69. Claimant's last payment was made around mid-January [Year Y+11] …

70. Eventually, by an e-mail dated …, Claimant notified Respondent of the following …:

We refer to the Basic Cooperation Agreement of June 30, [Year Y] (the Agreement). On today's date, our legal counsels have filed a Request for Arbitration with the ICC pursuant to Article 17 of the Agreement.

Pending the arbitration proceedings, we exercise our right to suspend payments of [Respondent]'s invoices under Section 1460 of the Italian Civil Code. We will deposit in escrow the funds required to pay such invoices with instructions to the escrow agent to release the funds in favor of [Respondent] should the Arbitration Tribunal adjudicate against our company.

Nevertheless, we will continue to comply with the terms of the Agreement serving our clients in accordance with market best practice ...

6 Respondent's termination of the BCA for cause

71. Respondent reacted by its letter dated 28 February [Year Y+11], which – after having listed a number of invoices allegedly overdue - went on to say:

In consideration of the above, pursuant to … of the Agreement, we request that you make the full payment of the amount invoiced plus accrued interests immediately and, in any event, not later than 30 days after the receipt of this notice, it being understood that, should the payment not be received within such notice period, the Agreement will be deemed terminated without further notice ...

72. To the Tribunal's knowledge, Respondent's invoices at stake have not been paid, yet.

…..

G. Analysis of Claimant's claims

I. Damages Resulting from the (alleged) Abuse of Economic Dependence

…..

3. Specific Claims

..…

d) Profit lost on orders placed by Claimant but not executed by Respondent (EUR …)

103. Concerning this claim, the first question to be decided is whether the early termination of the BCA - which Respondent grounded on an alleged breach of contract by Claimant - was legitimate and valid, or not. In the Tribunal's view, it was.

104. The relevant breach does not consist in the fact that Claimant used to pay Respondent's invoices within 150 days instead of 120 (as provided for in the BCA); by conclusive acts and conduct, the Parties indeed implicitly agreed on such longer payment terms … Rather, the relevant breach entitling Respondent to early termination pursuant to Art. … of BCA, occurred when Claimant, during the pendency of the arbitral proceeding which it had just initiated, expressly declared that it would not pay the outstanding invoices ... Invoices that, a matter of fact, do not appear to have ever been paid.

105. Nor can the legitimacy and validity of the early termination of the BCA be denied on the ground of the exceptio non adimpleti contractus pursuant to Article 1460 CC, which Claimant raised by alleging to be in its turn the victim of breaches of the BCA committed by Respondent. The exception has no merit, because the alleged breaches proved either not to exist (abuse of economic dependence, and/or violation of good faith and the duty of fair dealing) or not to present the necessary synallagmatic relationship (so called "functional synallagma") to the obligation of paying Respondent's invoices for the goods supplied (cross divisional sales, loss on stock).

106. Inasmuch as the breaches ascribed by Claimant to Respondent, which Claimant invoked to justify the decision to suspend or deny its own performance of the BCA, bore no relationship to the latter, the functional synallagma was not impaired, and Claimant was not entitled to deny or suspend its performance.

107. On the other hand, if Respondent's termination of the BCA for cause was legitimate and valid, then there was no contract in place as of 31 March [Year Y+14] … In consequence, the orders placed by Claimant after the effective date of termination of the BCA, and which should have been executed after that date, did not need to be honored by Respondent.

108. More specifically, as orders were generally executed by Respondent within 60 days …, there was no obligation of Respondent to execute orders placed by Claimant after 31 January [Year Y+11].

109. Pursuant to the list of orders that is part of the docket, there are two orders (only one of them of a substantial size) dating before the end of [Year Y+11] … However, after having issued the termination letter and pending the applicable period to cure the breach, based on the exceptio non adimpleti contractus (Article 1460 CC) Respondent was allowed not to deliver those orders either. As a matter of common sense, it would be unreasonable to hold Respondent obliged to execute orders, i.e. to supply goods1that it knew Claimant would not pay for, because that was its express will.

110. Common sense finds support in the law. The concept of anticipatory breach (or anticipatory repudiation) typically belongs to the common law systems. As such it is not codified in, but is nonetheless known to, most civil law jurisdictions. In Italy, it was developed by the legal literature of the past century, and was repeatedly affirmed by the case law of the recent decades. In a nutshell, the expression by a party of the will not to perform a contract by which it is bound is for legal purposes to be likened to that party's very failure to perform (Cass. no. 9637/2001; Cass. no. 97/1997; Cass. no. 2738/1982; Cass. no. 1721/1982; etc.), provided there is proportionality between the obligation destined to remain unperformed and the other party's interest in receiving its performance, and furthermore that such party's behaviour complies with the general duty of good faith. The legal rationale of the anticipatory breach is commonly found in the general duty of good faith in the performance of contracts, which is deemed breached by the party expressing the positive will to withhold its performance (Cass. no. 23823/2012).

111. It, thus, follows that the expression by Claimant of the will to deny its performance of the BCA by withholding payment of invoices due for a substantial amount, in the absence of quality or other claims related to the deliveries that were the object of those invoices, entitled Respondent to exercise its right to suspend or deny its own performance in consequence (exceptio non adimpleti contractus).

112. For these reasons, Claimant's claim is fully rejected.