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Final Arbitration Award

I, THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the arbitration agreement entered into between the above-named parties and dated January 1, 2009, and having been duly sworn, and having heard the proofs and allegations of the parties, do hereby AWARD, as follows:

I. BACKGROUND AND FACTS1

1.1.
Honeywell commenced this arbitration on December 4, 2015 pursuant to the arbitration clause contained in the Sales Representation Agreement ("SRA") entered into by the parties effective as of January 1, 2009.
1.2.
That clause, Article 8A, provides for the arbitration of any dispute, controversy or claim arising out of the SRA or the breach, termination or invalidity thereof, in accordance with the International Rules of the American Arbitration Association. Article 8C designates the place of arbitration as New York, New York and requires the Tribunal to apply the law of the State of New Jersey to all disputes.
1.3.
Following Claimant’s termination of the SRA effective December 31, 2013, the Respondent in its February 12, 2014 letter asserted its entitlement to compensation in the form of an indemnity prescribed by Art. 27j of the BSRL by reason of its termination by Honeywell.
1.4.
On February 27, 2014 Claimant responded by noting that Article 5C of the SRA precludes the right to compensation or damages by reason of termination.
1.5.
On May 27, 2016, Brasilfert made a motion to dismiss the arbitration ("Motion") asserting that this Tribunal lacks jurisdiction, by virtue of mandatory Brazilian law, to decide the dispute and that the claims and defenses pled by the parties are non-arbitrable.
1.6.
On July 7, 2016, the Tribunal issued an Order denying Respondent’s Motion, and the parties proceeded with evidentiary hearings, which took place on November 7 and December 12, 2016.2
1.7.
After receiving Claimant’s letter rejecting Respondent’s damages claim for compensation based on Art. 27j of the BSRL, Brasilfert commenced a proceeding in the Sao Paulo State Justice Court ("SPJC") based on that provision.
1.8.
In August 2016 the SPJC "dismissed" the proceeding in view of the arbitration clause in the SRA, citing the "absolute" nature of the Brazilian Arbitration Law in lieu of the "natural jurisdiction of courts of law."3 Cl. Exh. 2.
1.9.
The sales representation relationship of the parties or their predecessors in interest dates back to at least 1977. (See Agreement dated April 27, 1977 produced during the November 7, 2016 evidentiary hearing as Cl. Exh. 18). There followed a succession of agreements, including extensions of existing agreements, prior to the SRA. In each such agreement or extension Brasilfert waived or renounced any claims made on account of its termination. See Cl. Exhs. 1-17.
1.10.
Beginning with the 2001 Agreement and continuing with the 2004 and 2007 Agreements, the parties agreed to a Commonwealth of Virginia choice of law provision, a Virginia state and federal courts' forum provision and an express waiver by Brasilfert of the application of the laws of Brazil. Cl. Exhs. 3-12.
1.11.
Fred Monesmith, ("Monesmith") a retired Honeywell executive who was the principal Honeywell contact with Brasilfert from the late 1980s responsible for ammonium sulfate sales in Brazil, testified credibly that compensation payable to Brasilfert for its services was the subject of periodic negotiations during the various agreement renewals but never to his recollection was there any objection on the part of Brasilfert to the limitation of remedy, the choice of law or the choice of forum provisions, or in the case of the SRA, the arbitration clause.4
1.12.
Francisco Alves, ("Alves") who during the SRA negotiation was at that time the only Brasilfert shareholder who was working at Brasilfert actively as an executive, corroborated Monesmith’s testimony that Brasilfert had no objections to the choice of law and forum and limitation of remedies clauses in the SRA.5 Tr. 1 at 142, 143, Cl. Exh. 1.
1.13.
Brasilfert’s indemnity claim is based on commissions and fees paid to it by Honeywell from 1986 and continuing through the five years under the SRA amounting to R$82,000,000 (US$25,500,000 at current exchange rates). Cl. Exh. 11.
1.14.
Although the SRA was terminated effective December 31, 2013, Alves testified that he was notified in person of the effective date of the termination in July 2013. Tr. 1 at 159, 160, Exh. 1.

II. THE PARTIES’ CLAIMS

2.1.
Brasilfert seeks the equivalent in Brazilian currency of US$1,800,000 based on US$5,400 per month for compensation for 27 years of representation of Honeywell as a non-exclusive sales agent for the sale by Honeywell of ammonium sulfate for a fixed and variable monthly commission.
2.2.
Brasilfert’s claim for an indemnity is based on what it alleges to be the mandatory requirements of Article 27j which are non-waivable. Brasilfert notes that the indemnity provision of the BSRL was enacted in 1965 and was amended without modification in 1992 and 2010.
2.3.
Brasilfert asserts that it was "forced" to enter into the SRA and that the limitation of liability provision, New Jersey governing law clause and imposition of "international arbitration" were attempts at "defrauding the mandatory law imposed on everyone who hires Commercial Agents in Brazil."6 Respondent concludes by requesting this Tribunal to refuse jurisdiction in favor of the Brazilian Courts in light of Claimant’s "bad faith" and "attempted fraud."7
2.4.
Respondent seeks reimbursement for all its expenses resulting from Honeywell’s "fraudulent claims."8
2.5.
Claimant seeks a declaration that the SRA is fully valid and enforceable, including its Article 5C by which Respondent agreed that Honeywell would not be required upon termination of the SRA "to make any payment to Brasilfert beyond compensation earned prior to determination."9
2.6.
Claimant further seeks all costs against Respondent of this arbitration and reimbursement by Respondent of all Claimant’s "attorney’s fees incurred... herein in accordance with Article 34 of the ICDR Rules for International Dispute Resolution."10

III. ISSUES

3.1.
Is the SRA and in particular Article 5C valid and enforceable as written to obviate any right to payment by Honeywell to Brasilfert of compensation under 27j?
3.2.
Put differently, is the BSRA, and specifically 27j, a mandatory law that cannot be waived as a matter of Brazilian public policy or international public policy, even if such waivers are enforceable against Brasilfert under chosen governing law and law of the arbitration forum?

IV. DISCUSSION

4.1.
Each party had a qualified Brazilian and international law expert who testified with respect to the Brazilian and international legal issues of the case and in particular the applicability of 27j to the dispute.
4.2.
Respondent’s expert, Professor Gilberto Giusti, testified in essence that 27j is both mandatory and non-waivable by Respondent, regardless of the facts underlying its representation and its agreements with Honeywell over the years as to choice of law, choice of forum, limitation of liability, and, finally, arbitration under the SRA of any dispute with Honeywell.
4.3.
By contrast, Claimant’s expert, Professor Luiz Olavo Baptista, testified that Brazilian law permits and respects the freedom of the parties to choose arbitration and applicable law, including foreign arbitration and law, and that 27j is a temporal law that, though "mandatory", will be subordinated to valid and enforceable waivers under agreed foreign law and arbitration consistent with Brazilian public policy.
4.4.
The primacy of arbitration in the circumstances of the parties’ dispute over post-termination indemnity was underscored by the Sao Paulo State Justice Court’s August 19, 2016 judgment in favor of Honeywell on the pleadings. Although that judgment was not a decision on the merits, it illustrates the evolution of the importance of arbitration under Brazilian jurisprudence in the context on international commercial transactions and relationships. Acknowledging the concept of party autonomy, exemplified by the SRA, the Court stated:

"The proceedings will be dismissed, since there is an arbitration clause in the agreement discussed in the lawsuit.

Indeed, arbitration, set forth in Law no. 9,307/96, is absolute and removes the natural jurisdiction of courts of law. It constitutes an allowed exception to the official monopoly (article 5, XXXV, of the Federal Constitution). It is inadmissible only when non-waivable rights are at stake or when inserted into an adhesion contract without the consumer being able effectively to be aware of and understand the effects of this method of dispute resolution.

This is not the situation in the case records.

Thus, there is no reason to bend, in this particular case, the principal of pacta sunt servanda, given that the choice of arbitrators to resolve potential contractual disputes was decided with absolute transparency, revealing the complete exclusion of the state jurisdiction, as can be seen from the agreement." Brasilfert Comercio Representacao Ltda. v. Honeywell Internacional, Inc., 8.19.2016 Summary Rpt. No. 1024873-53 2014.8.26.0100, Cl. Exh. 2. (emphasis added)

4.5.
The overarching issue to be resolved in this arbitration is whether the SRA, freely entered into by a United States based principal and a Brazilian sales agency, containing New York choice of forum and New Jersey choice of law provisions and an arbitration clause requiring dispute resolution under AAA international rules, should be disregarded by the Tribunal in favor of a Brazilian law that allegedly requires a post-termination indemnity payment to the sales agency.
4.6.
There was no credible testimony adduced at the evidentiary hearing that the now challenged provisions of the SRA were not agreed contemporaneously by the parties, freely and in good faith, reflective of a multi-decade commercial relationship, the terms of which were memorialized in successive agreements culminating with the SRA.
4.7.
The presumed rationale for 27j as a "mandatory" law is that it represents a public interest law that "[R]egulates the activities of self-employed sales agents." See BSRL introductory sentence.
4.8.
The inquiry then is whether 27j is in the nature of a public interest law that has mandatory application to override party autonomy in an agreement wherein the applicable law permits the express waiver of claims of indemnification of the type set forth in 27j.
4.9.
There are several types of mandatory laws. There are those that represent a state’s economic, administrative or social interests, such as exchange control and currency regulations, export and import control regulations, competition or antitrust laws. On the other hand, there are those that represent rules to protect the deemed-to-be weaker party in certain relationships such as landlord-tenant, employer-employee, insurer-insured, merchant-consumer or principal-sales agent.
4.10.
This Tribunal recognizes that in the international commercial law arena the inherent conflict between party autonomy in selecting the governing contractual law and contrary mandatory law in a different jurisdiction (albeit one connected to the underlying issues) can be problematic and subject to different views. This tension or conflict supports the view that each case, this one included, should be decided on its own merits taking into account not merely the legal analysis in interpreting competing law and jurisprudence but the particular facts and circumstances of the parties’ lengthy relationship.
4.11.
In assessing the facts and circumstances and the relative merits of party autonomy versus mandatory, unwaivable law, the determination of what constitutes unwaivable public policy and morals is paramount. On the one hand, there clearly is a type of public policy that overrides contrary party autonomy. If choice of law is made for a fraudulent purpose such as to avoid tax or currency regulations or application of competition laws where there is a clear and unmistakable national or internal purpose, such a public policy is doubtless unwaivable. In such a case an arbitral award which contravenes such a clearly mandatory national policy is unlikely to be enforceable under the New York Convention.
4.12.
Another form of national public policy is typically that which provides statutory protection to employees in the form of notice and severance provisions, maternity and paternity rights, work hours, or other workplace factors. Employees are deemed to be weaker and thus require protection against employers. Such protection, for example, is afforded employees under Brazilian labor laws.

To the extent, therefore, that an agency relationship, such as was the case between Honeywell and Brasilfert, more closely resembled an employment or master/servant relationship protected by the Brazilian labor law, the more likely the law protecting the Brazilian agent would be held to be mandatory and unwaivable.

4.13.
One commentator emphasizing the limitation on using Brazilian public policy to override chosen foreign law expressed the need for factual analysis thus:11

"...In other words, the violation of Brazilian public policy will only take place if the choice of a foreign law contravenes an important principle of the Brazilian legal system, such as a constitutional principle, or in the case of a fraud of law, when the parties purposely try to circumvent a Brazilian public rule by selecting foreign legislation.

In summary, the determination of whether a given decision violates public policy is a case-by-case analysis, which will depend on the circumstancesin concerto.This is because, as pointed out by Brazilian scholars, public policy is a concept that is relative, unstable and contemporaneous by essence." (emphasis added)

4.14.
Professor Baptista opines that the 27j rights afforded to a sales agent under the BSRL are freely disposable and waivable, in part because 27j is temporal and does not reflect the principles essential to the Brazilian legal system and interests of society as a whole. These rights must be interpreted in the context of the distinct facts underlying the parties’ relationship. Such facts in the instant proceeding, the Tribunal finds, include the following:

A relationship going back to 1977 (although the indemnity claimed by Brasilfert is based on commissions and fees paid from 1986 to the end of 2013).

A contractual waiver throughout the relationship by Brasilfert of any claims on account of termination of the applicable agreement.

The parties’ agreement for several years prior to the SRA to judicial resolution of disputes by courts in the Commonwealth of Virginia with disputes governed by Virginia law.

The parties’ agreement under the SRA to arbitration of disputes under the International Rules of the American Arbitration Association applying New Jersey Law in a New York forum.

Monesmith’s uncontroverted and Unchallenged testimony at the evidentiary hearing that (a) Honeywell was paying Brasilfert much higher compensation than its competitors, including Ameropa and Cargill, for the same services. Tr. 1 at 116. (b) at a time when there were less sales Brasilfert "received $25,000 a month to cover their costs" plus a percentage of the FOB price of product. Id. at 117, and (c) for each year from 2007 through 2013 "Brasilfert collected between $450,000 and $500,000."

On cross examination by counsel for. Brasilfert, Monesmith was asked:

"Q. Did Brasilfert open the Brazilian market to the Claimant?

A. To answer that question, I would say no, but it needs explanation. The market was opened by my former boss, Mr. Ward Rowley, and he worked with someone by the name of Alfredo Mendes, who became an employee of Allied Chemical [later merged with Honeywell].

And between Mr. Mendes as an employee and Mr. Rowley as a representative from the United States, they opened the market.

THE ARBITRATOR: When was that?

B. I believe that was in the middle - middle, early 1970s." Id. at 130."

Alves testified that Brasilfert represented Ameropa and Cargill, both active participants in the Brazilian fertilizer market, but those companies terminated their representation agreements with Brasilfert in the 2002 and 2003 timeframe. Tr. 1 at 138-140.

Alves became a shareholder of Brasilfert in 2009 and was by then the only executive remaining at Brasilfert. At that time Aldir Correia and Gustavo Correia together owned the majority of the shares of Brasilfert. Aldir Correia ("Correia") left Brasilfert in 2003 when he went to work for Ameropa until 2013, but he retained his shares in Brasilfert and became the majority shareholder in 2008. Tr. 1 at 198.

Correia had not worked at Brasilfert since 2004.

Other Brasilfert employees left Brasilfert for Cargill and Ameropa following those companies’ termination of Brasilfert.

Alves testified that Brasilfert never demanded indemnity under the BSRL from either Cargill or Ameropa after their termination of Brasilfert. Tr. 1 at 162. Correia said Brasilfert was paid "some amount." Tr. 1 at 233.

Correia agreed that Honeywell kept Brasilfert afloat for eight years after it was terminated by Cargill and Ameropa. Tr. I at 203.

Correia acquired from Alves his Brasilfert shares at a nominal value when Alves in 2014 went to work for Honeywell, Tr. 1 at 221-223. Correia thus became the sole shareholder of Brasilfert, testifying that should Respondent be successful in its 27j indemnity claim all the money would go to his retirement. "If I win, it is my money. I do what I want with it." Tr. At 209.

4.15.
The foregoing facts reflect collectively less "the activities of self-employed sales agents" which the BSRL regulates but more a successful company from which its shareholders and executives, including corporate shareholders at times, have benefited in the form of compensation and commission over the years from sales representation of several foreign entities such as Honeywell.
4.16.
Brasilfert’s lawyers made several arguments, including:

(a) Like Brazilian labor law, criminal, tax and administrative law, 27j is not waivable and the prior waiver of rights, by Brasilfert, which it contends, was "forced" on Brasilfert, amounts to "legal fraud." See Resp. Post-Hearing Brief at 4-6, 14.

(b) The SRA with an arbitration clause "was, in fact, a childish attempt at legal fraud," in part because there is no connection between New Jersey law and an agent that is "granted labor law guarantees," and the Brazilian arbitration law only permits arbitration of disputes relating to waivable property rights. Id at 7, 8.

(c) Claimant "by changing the applicable law of the contractual relationship as from January 2009 and ‘armoring’ such change with the ‘Arbitration Clause’" was not acting in good faith and had the intent to perpetuate "fraud of the law." Id. at 21.

4.17.
Respondent’s Post-Hearing brief conflates employment and labor relations with the commercial character of the SRA and the actual relationship of the parties.
4.18.
Baptista asserts that Brasilfert’s arguments fail for several reasons. Brasilfert’s argument that 27j is statutory and non-waivable would per se incorrectly equate it with a labor statute and obviate agreed arbitration, choice law and choice of venue. Moreover, the Tribunal notes that the Sao Paulo State Justice Court has already rejected that argument in its dismissal of Brasilfert’s action based on the arbitration clause in the SRA, finding that the 27j rights can only be disregarded if they are either non-waivable rights or an adhesion contract is involved, and that neither existed.12
4.19.
The Sao Paulo Court’s finding is consistent with Dr. Baptista’s opinion that the Brazilian Law of Arbitration does not address the so-called "weakness" of a party but requires only that patrimonial and waivable rights be involved. Cl. Exp. Rep. at ¶ 68.
4.20.
The STF, the highest court for constitutional matters, in recognizing the constitutionality of the Brazilian Arbitration Law, acknowledged sales representation rights as "unquestionably waivable." Cl. Exp. Rep. ¶¶ 65, 66, citing STF, Full, Aug. Req. in Foreign Decision no. 5, 206-7 - Kingdom of Spain, Reporting Justice Sepulveda Pertence, judged on December 12, 2001.
4.21.
Baptista cited another case, in which the STF ratified a foreign arbitration award which addressed indemnification for commercial disputes arising from termination of sales representation agreements. In granting the request to ratify the foreign arbitration award the Court noted that the claimed indemnification resulting from termination of the agreement does not violate "domestic procedures or, also, sovereignty and legal order."13
4.22.
Each party has cited the Hague Principles, regarding choice of law, to support its argument. This Tribunal by its July 7, 2016 Order ruled that the parties’ choice of New Jersey laws was valid and enforceable. Order at ¶s 3.3, 3.4.
4.23.
The application of the parties’ chosen New Jersey law is valid under the Hague Principles if it does not offend fundamental notions of ordre public of the forum, in this case the State of New York.14 Notably, "[N]o connection is required between the law chosen and the parties or their transaction."15 The SRA’s limitation of liability provision obviating Respondent’s 27j indemnity claim not only is valid under New Jersey law,16 but enforceable under New York law, and no evidence has been adduced or authority presented that exclusion of the 27j indemnity violates New York public policy.17
4.24.
As noted, the Brazilian Arbitration Act permits parties significant autonomy to select applicable law and the situs or place or arbitration, particularly in international agreements.
4.25.
The STJ stressed the paramount nature of party autonomy in international commercial contracts when it ruled that the Brazilian Consumer Protection Code ("BCPC"), though an expression of public policy, defers to the parties’ freely chosen governing law, thereby deciding in favor of the American company against the Brazilian company seeking protection under the BCPC.18

V. CONCLUSION

5.1.
This Tribunal credits the opinion given by Baptista that while 27j is by its literal language a "mandatory" provision, it is temporal and not absolute and should be interpreted on a case-by-case basis. That view is supported by Brazilian court decisions of the STF and STJ and commentaries cited in his expert report and in Claimant’s Post-Hearing brief. In fact, Professor Gusti evidently agrees in that respect,19 although he appeared to reach the conclusion nonetheless that 27j represents a public policy law so essential to the collective interest that it is non-waivable.
5.2.
The Tribunal disagrees with Giusti and agrees with Baptista’s opinion that 27j under the facts of this case is waivable.
5.3.
The facts underlying the long-standing relationship between the parties as reflected in the testimony and evidence given at the evidentiary hearing demonstrate a successful and evidently harmonious business relationship far removed from an employment or other relationship between a "weak" agent and a "strong" principal. Shareholder executives, the evidentiary record shows, periodically left Brasilfert on their own volition to become employed by other manufacturing companies in the industry.
5.4.
There was no evidence to support the contention that Brasilfert was ever forced or coerced into agreeing to any of the terms in the various agreements, that reflected its relationship with Honeywell since the 1970s.
5.5.
In fact there was no evidence before this Tribunal to suggest that the contractual provisions were non-negotiable, let alone that Honeywell acted "in bad faith" and fraudulently, as Brasilfert’s counsel argues. To tire contrary, Claimant and Baptista assert that Respondent violated basic principles of good faith under Brazilian and international law by repeatedly accepting, without objection, the waiver of indemnity provisions in the contracts it signed with Honeywell.20
5.6.
Each party agreed that the Brazilian Arbitration Law validates this international arbitration proceeding provided that the "mandatory" law, in this case 27j, is waivable. Given the nature of the relationship as a commercial one between two corporate entities and the facts discussed above, as well as cited Brazilian jurisprudence, 27j confers a right in Brasilfert that is freely disposable and waivable as a property right and indeed was freely and consistently waived by Brasilfert.
5.7.
Moreover, such conclusion is consistent with international public policy, even assuming 27j is a law reflecting Brazilian public policy. In that regard, Baptista quotes a Brazilian legal commentator, as follows:

"[I]t is not enough not to accept a legal institution through legislation to prevent the recognition of the foreign law that allows it, but it is necessary also that this institution goes against the widespread and common sense of the international community (such as, for example, polygamy, slavery etc.), it is not enough either, that the rule is of a cogent nature relating to citizens, in order to create, for that reason alone, an impediment to the discipline, through another rule, on the relationships between foreigners (such as, for example, those relating to the status and capacity of persons, to succession); what is needed is, on the contrary, for it to be so, that it cannot accept, without serious disturbance to public order or offense to good morals, a different regulation, even applicable only to foreigners. Therefore, the sphere of public order, for the purposes of international law, is stricter than the sphere of public policy for the purposes of domestic order; and an abstractly and theoretically stricter delimitation is not possible due to the nature of the concept of public order, which is essentially variable and contingent: its determination must be trusted for each case to the prudent arbitration of the judge."21 (emphasis added).

5.8.
Accordingly, insofar as the parties’ chosen governing law is not in violation of international public policy, this Tribunal finds and concludes that the choice of law agreed in the SRA is enforceable and is not obviated by the domestic Brazilian policy manifested by 27j or by international public policy.
5.9.
The Tribunal finds that such waiver by Brasilfert was in accordance with the applicable law (New Jersey), the law of the forum (New York), Brazilian Arbitration Law and jurisprudence as interpreted by Brazilian courts and commentators, the Hague Principles and international public policy.

VI. AWARD

6.1.
For the reasons stated above, I award as follows:
6.2.
The Tribunal’s July 7, 2016 Order, denying Brasilfert’s Motion to Dismiss the arbitration on the grounds that the Tribunal lacks jurisdiction to decide the dispute and that the parties’ claims and defenses are non-arbitrable by reason of the BSRL, is hereby incorporated herein.
6.3.
The request from Claimant, AdvanSix, Inc., as the successor of Honeywell International, Inc., for an award declaring that the Sales Representation agreement is valid and enforceable as written, and that it is not required to make any payment to Respondent by reason of its termination of the Sales Representation Agreement, is granted.
6.4.
The renewed claim by Respondent, Brasilfert Comercio e Representacao, Ltda., that the Tribunal lacks jurisdiction, and its claim that it is entitled to an indemnity in accordance with 27j of the BSRL, are denied and dismissed.
6.5.
All claims for Costs, expenses and attorneys’ fees are denied.
6.6.
The administrative fees and expenses of the ICDR totaling $5,750.00, and the compensation of the Arbitrator totaling $69,712.50, shall be borne equally by Claimant and Respondent. Therefore, Respondent shall pay Claimant the sum of $37,731.25 to reimburse Claimant for amounts previously advanced for the ICDR administrative fees and the Arbitrator’s compensation.
6.7.
This Final Arbitration Award is in full settlement of all claims and requests submitted to this arbitration. Any claim which is not expressly granted herein is denied.
I hereby certify that, for the purposes of Article 1 of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award was made in the State of New York.
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