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Lawyers, other representatives, expert(s), tribunal’s secretary

Partial Award

A. INTRODUCTION

1.
This matter was conducted by a three-member person Arbitral Tribunal under the Rules of Arbitration of the International Chamber of Commerce.
2.
The parties entered into what they chose to describe as a Joint Venture Agreement (the "JVA") on July 5, 2005. Article IX.C provided for arbitration of disputes between them:

Any claim, dispute or controversy between the Parties arising out of or relating to this Agreement, or the alleged breach hereof, that cannot be satisfactorily settled among the Parties within thirty (30) calendar days after the date on which the issue was first raised in a written notice, shall be settled by final binding arbitration before the International Chamber of Commerce ("ICC") in Nogales, Arizona. The arbitration shall be heard and determined by a panel of three arbitrators, selected in accordance with ICC procedures. Each Party shall be permitted to conduct reasonable pretrial discovery. Any award rendered by the arbitral tribunal shall be payable in US dollars free of any tax or any other deduction. The award shall include: (i) interest from the date of any breach or other violation of this contract (the arbitrators shall fix an appropriate rate of interest); and (ii) the reasonable attorneys fees and costs incurred by the prevailing party in the arbitration:

3.
Pursuant to this arbitration clause, and to the Rules of Arbitration of the International Chamber of Commerce, the Claimant PACIFIC TOMATO GROWERS, LTD. (hereafter PTG) made a Request for Arbitration and Claim received by the Secretariat of the International Court of Arbitration ("Secretariat") on December 18, 2006, and named Mr. E. Bruce McEvoy, Vero Beach, Florida, USA, as an arbitrator. The Respondents’ AGRICOLA LA PRIMAVERA, S.A., de C.V., a Mexican corporation (hereafter ALP) and KALIROY PRODUCE., INC. d/b/a KALI ROY-PACIFIC, an Arizona corporation, (hereafter Kaliroy) Answer and Counterclaim was received by the Secretariat on January 29, 2007. The Respondents subsequently, by letter dated May 15, 2007, jointly nominated Omar Aguilar Medrano of Mexico DF, Mexico, as an arbitrator. The Claimant then submitted an Answer to the Counterclaim, which was received by the Secretariat on March 7, 2007. The co-arbitrators were confirmed by the Secretary General of the ICC International Court of Arbitration on 11 July 2007, pursuant to Article 9(2) of the ICC Rules. The parties filed amendments to the Claim, Answer, Counterclaim and Answer to Counterclaim. The ICC International Court of Arbitration ("ICC Court") appointed Hon. Roger P. Kerens FCIArb, of Victoria, BC, Canada, as Chairman of the Arbitral Tribunal at its session of August 10, 2007, upon the proposal of the Canadian Chamber of Commerce, thus constituting the Tribunal the same day. The file was transferred to the Tribunal on August 13, 2007.
4.
The parties agreed to Terms of Reference, which were signed by the Arbitral Tribunal and the parties, the last date of signature being February 22, 2008, and a Procedural Timetable on February 14, 2008, which provided for certain preliminary steps followed by a hearing of this matter to begin August 18, 2008, in Phoenix, Arizona, USA, which then carried on until completion on August 28, 2008 (the "Hearing").
5.
After deliberation, and argument, and having decided that the parties had received a reasonable opportunity to present their cases, the Tribunal closed the proceedings on January 22, 2009. The Tribunal decided to issue a Partial Award, and, having noted that the arbitration clause, as well as the ICC Rules, permits the award of costs by the Tribunal, and after hearing submissions from counsel on the timing of a costs award, to decide the issue of costs in a Final Award to be made by the parties after they have an opportunity to review the Partial Award. The Arbitral Tribunal also reserves for the same hearing the question what if any compounding rights the parties have respecting interest, an issue that was not discussed at hearing.
6.
The International Court of Arbitration periodically extended the time limit for rendering the Final Award, which currently is January 31, 2010.

B. PRELIMINARY AND POST-HEARING MATTERS

7.
The parties agreed in the Terms of Reference to conduct production of documents, pre-hearing examinations, and production and exchange of expert reports, all of which were completed.
8.
Several disputes arose between the parties in the course of the pre-hearing preparations, which the Tribunal resolved by rulings except in one case, where the panel was able to persuade the parties to a consent disposition.
9.
Several days after the Hearing began, it was discovered that the stenographers originally engaged by the parties to administer oaths, and to prepare a transcript, were apparently not licensed in Arizona to administer oaths, although all were fully qualified and licensed in California. From concern more about respect for the legal requirements at the place of the arbitration than about a risk to truth-telling, the Tribunal invited all witnesses to be re-sworn before a licensed person, and for each to consider affirming earlier testimony. All witnesses did so, and some took the occasion to clarify earlier testimony, and were subjected to further cross-examination. Mr. Parker nonetheless expressed concern about the efficacy of the oaths, and moved to declare a "mistrial", the idea being that the Hearing would be adjourned and re-commenced some months later and all the evidence re-taken. His argument was that, somehow, in the course of this re-swearing, there was a risk that the witnesses may not tell the truth. The Tribunal rejected this motion, saying that the injustice offered by the cost to the parties and witnesses of such a delay more than out-weighed the dubious idea that this affair had led to doubt about truth-telling.
10.
The Hearing lasted eight (8) days, eighteen (18) witnesses were heard, and eleven hundred and seventy-seven (1177) exhibits admitted.
11.
Each party called a witness who was an expert in Arizona law. Both testified that Arizona law regarding contract matters follows and applies, with few exceptions, the US Restatement of Contracts.

C. BASIC FACTS

12.
The Claimant/Counter-Respondent, PTG, is a Florida limited partnership, the Respondent/Counterclaimant, ALP, is a Mexican corporation, and the Respondent/Counterclaimant, Kaliroy, is an Arizona corporation.
13.
Mr. Eduardo de la Vega Canelos (Mr. de la Vega) is the principal officer of both ALP and Kaliroy. Mr. Joey Esformes was the principal officer of PTG in the early days of the agreements, but later was replaced by Mr. Heller.
14.
ALP is the farming arm and Kaliroy the selling arm of a de la Vega family tomato farming business, consisting of four-hundred and one (401) hectares, nine hundred and ninety (990 acres) of open field plus one hundred and sixty 160 hectares three hundred and ninety five (395 acres) of greenhouses owned by ALP near Culiacan, in the state of Sinaloa, Mexico. American and Canadian sales were shipped through the border at Nogales, New Mexico, USA.
15.
PTG is a large wholesale distributor of tomatoes, mostly from Florida fields but also with production in California.
16.
In Sinaloa, the normal growth season is over the winter. Crops are planted in the fall, and harvest begins in January, and can continue for several months. The term of the agreements between the parties reflect this crop season.
17.
Some tomatoes were sold in Mexico but most production moved across the border to wholesalers in USA and Canada. Several varieties of tomatoes were grown, and sometimes peppers, the choice being basically market and climate driven. The tomatoes were packed for retail sale before leaving Mexico. If shipped to the US market, they were mostly branded as Sunripe, a PTG brand that it authorized the Respondents to use. The counterclaim is for damages for loss of the availability of that brand for sale of tomatoes in the US market.
18.
Beginning in 2003, the parties entered into a series of two one-year joint venture agreements (2003-4, and 2004-5) for the purpose of growing, developing, cultivating, harvesting, packaging, shipping, distributing, and selling various types of agricultural products in Mexico, the United States, and elsewhere.
19.
The joint venture received a clean audit for 2003-2004. Profits were distributed, and all seemed to be well. The 2004-05 joint venture agreement was signed, identical in form except for adjustments in acreage, budget and contributions. In 2004-5 there were crop problems, and the venture lost money. Nevertheless, the parties agreed in the summer of 2005 to renew the relationship.
20.
The parties entered into their last joint venture agreement, the JVA, effective July 1, 2005. (On August 9, 2005, the agreement was signed by PTG and both Kaliroy and ALP.) Unlike the previous contracts, it contained words about expiration after more than one year, but a dispute arose in that regard. PTG described the combination of rights as a set of three one-year contracts. Respondents said it was a three year contract.
21.
The JVA contains these key provisions, all of which was accepted and relied upon by both parties with the result there is no need for more specific reference:

‣ PTG and Respondents each have a 50% interest, with profits distributed at year-end;

‣ "Kaliroy and/or Agricola" will manage the enterprise pursuant to an agreed operating plan, and sell in accord with separate grower distributor agreement, financed if possible through sales plus needed weekly "advances" from Kaliroy to ALP based on its needs, and comply with US border regulation.

‣ The terms refer to Kaliroy as "marketing agent" and it is to receive a commission for sales. Kaliroy shall cooperate with ALP re marketing and distribution, and PTG shall have full access to all operations and documents;

‣ ALP and Kaliroy each warrant to PTG that it is duly organized, in good standing, that the JVA does not create any conflict with any other contract or law, Mr. de la Vega is authorized to sign for each, and each is bound by the JVA. ALP warrants that it owns or has exclusive use of the farm lands, and each promise to operate in compliance with US and Mexican law;

‣ Before each growing season, the parties agree to enter into a "growing agreement" spelling out the detail of the crop plans for the forthcoming season, and PTG agrees to advance, subject to terms, a portion of the planting costs to be repaid after harvest;

‣ PTG promises to supply boxes to Kaliroy for shipment of tomatoes to the wholesale market, and these are to display PTG brands, such as Sunripe;

‣ The financial year-end was June 30 each year.

One JVA, Two JVAs or Three?

22.
There was some confusion at and after the hearing about how many joint venture agreements existed between the parties for the calendar year 2005-2006. It will be helpful for readers if we would dispel this confusion at this early stage, as follows:

(a) Article Ill(B)1 of the JVA creates a joint venture involving PTG on the one hand and ALP and Kaliroy on the other. It assigns the growing duties to ALP, and the marketing duties to Kaliroy. No explicit agreement was produced to the Arbitral Tribunal that deals with their relationship -other than the terms of the JVA.

(b) Some of the wording in the JVA seems to indicate that there were two separate joint ventures, one between PTG and ALP and the other between PTG and Kaliroy. The view of the Arbitral Tribunal is that the JVA created but one joint venture, but this created a duty on the part of ALP to operate the growing business, and a duty on the art of Kaliroy to operate the farming business, both of which were to be for the benefit of the joint venture and were subject to all the terms of the joint venture agreement. It is appropriate to mention at the outset that neither side was appropriately represented by counsel during any of the negotiations for the preparation of the JVA. They did seek counsel on behalf of all parties from one attorney about the drafting of the renewal clause, and then they did not follow his advice. He warned that he could not act for any of them in the entire negotiations. So far as the Arbitral Tribunal is aware, nobody sought further counsel. Perhaps this is why they, during negotiations for the renewed JVA, failed to tackle outstanding issues that had come to a head earlier. We refer particularly to the "missing AenP", discussed in more detail later, which in fact had been missing since 2003. The "tax issue", also discussed in more detail later, also dates back to 2003, and is related to the missing AenP. The same is true about accounting issues.

(c) The JVA refers to "AenP", and there was some confusion in the JVA and in the evidence about what the "AenP" was, and what was its role in the relationship amongst the parties. First, Article lll of the JVA, which describes the makeup of the "AenP", is entitled "Entities". This is misleading if one thinks of an "entity" as a separate corporate existence, because no such thing was created. Also, Article V, dealing with profit distribution, refers, in subclause 2, to profits of "AenP", and Article IV C 1 refers again to "AenP" in the context of the duty to grow. Specifically subclause (a) provides that ALP shall "...cause AenP to grow, cultivate..."etc. Arguably, this meant that the "AenP" was not a party to the JVA, but merely an agent of ALP. It is also very confusing because, unlike ALP it was not a separate corporate body and did not have capacity to grow or cultivate. Again, there is confusion. This confusion led to contrary submissions by counsel as to the meaning of the JVA. PTG argued that there was to be a new entity created. See clause 32(2) below. The Respondents took a different view. See Section 35 (ii) below.

(d) This interpretive difficulty was raised by the Arbitral Tribunal early in the proceeding, after it had heard that neither PTG nor the de la Vega entities had consulted a lawyer when drafting these portions of the JVA and also that, in fact, no "AenP" was ever prepared or executed. Indeed, at that point, the Arbitral Tribunal considered a finding that the parties had failed to come to a meeting of minds, with the result that the JVA would be unenforceable or void for uncertainty. However, after discussion with counsel, the Arbitral Tribunal decided that the interpretive key was in Article III(A)2, which provided that the terms of the "AenP" were to "mirror" the JVA. The finding of the Arbitral Tribunal was and is that the two documents were to be identical, save that, as all parties agreed, the "AenP" was to be in the Spanish language (See Article IX(D)). In the result, the AenP was merely a copy of the JVA. To make sense of Article V(2) and Article IV C, they must be interpreted to refer to ALP, not "AenP", or the result would be endless confusion. The Arbitral Tribunal was confirmed in this decision when it learned, during the course of the hearing, about the tax issue, discussed below. The conclusion of the Arbitral Tribunal was that the real and sole purpose of the JVA in contemplating the creation of the "AenP" was to deal with that issue.

(e) The absence of the "AenP" document led PTG to make other allegations against ALP and Kaliroy, and these are dealt with elsewhere.

23.
For the first year of the JVA, the parties estimated the total costs and expenses of growing and harvesting for the 2005-2006 season to be US$17,463,991. Of these total cultivation costs, PTG was obliged to contribute 18%, or US$3,140,000, and to grant ALP/Kaliroy a non-exclusive license to use its trademark "Sunripe." For its 18% contribution and the use of its trademark, PTG would have a 50% interest in the profits of the JVA. Another 18% of anticipated 2005-2006 cultivation costs was to come from ALP’s agreed contribution of US$3,140,000, and ALP/Kaliroy also had the obligation to contribute or borrow the remaining US$11,183,991 in expected costs. ALP/Kaliroy received the other fifty percent (50%) profits interest for their eighteen percent (18%) equity contribution, its risk in borrowing the remaining US$11 million, and its management of growing and harvesting, and distribution/selling activities. PTG had a cap of US$3,588,706 on the amount of losses it was obliged to bear from growing and selling activities, while Respondents had an unlimited share of losses.
24.
Notwithstanding the difficulties that arose, the first year was very successful, with over US$7 million in profits to be distributed.
25.
Almost immediately after execution of the JVA, trouble arose. The particulars of the various issues between the parties are discussed below. Almost all of these troubles, to some degree, pre-dated the execution of the JVA, but came to a head in 2005-6.
26.
As a result of the difficulties that arose, PTG, on May 1 and again on September 19, 2006 made it clear that it was not going to enter into negotiations for a growing agreement for 2006-7, and also it sought to exercise its claimed right to cancel the renewal term so that the JVA would expire at the end of the 2005-6 season. The reason given was the many claimed breaches of the JVA by Respondents. This decision to "cancel" was later affirmed by counsel for PTG.
27.
On November 27, 2006, the Respondents gave formal notice of termination as provided in the JVA, alleging breaches of contract by PTG, including anticipatory repudiation.
28.
PTG has filed claims against both Kaliroy and ALP, and made similar allegations against each: violating its duty to keep accurate records, failing to allow PTG access accounting records, supply audits, distribute profits, avoid commingling of profits, as well as fraud and related claims. In the case of ALP, PTG also alleges that ALP had a duty to provide documentation to enable PTG to save U.S. taxes for Mexican taxes paid.
29.
The Respondents alleged an anticipatory repudiation of the JVA, and asked for damages based upon alleged losses of premium prices because PTG withdrew its consent to use of its Sunripe brand labeling.

D. POSITIONS OF THE PARTIES ON QUESTION OF LIABILITY AS STATED BY EACH

The Claimant PTG

30.
PTG contends that ALP and Kaliroy breached their fiduciary duties, duty of care, statutory duties, duties as Trustee, and obligations of good faith and fair dealing owed to PTG, and breached the JVA, in various ways, including, but not limited to:

(i) failing to file the required papers to obtain a tax identification number with the Mexican governmental tax authority for AenP and failing to provide written documentation to enable PTG to properly report its financial dealings with AenP, thus preventing PTG from realizing the appropriate tax credits in the U.S.;

(ii) failing to operate AenP in full compliance with Mexican laws, regulations and requirements including without limitation registering AenP with the Mexican tax authority;

(iii) failing to maintain full and accurate records and books of account for AenP and the Kaliroy Joint Venture in accordance with U.S. generally accepted accounting principles (USGAAP);

(iv) failing to provide PTG full access to the financial records and books of account pertaining to AenP and the Kaliroy Joint Venture;

(v) failing to prepare a planting program and budget for PTG's approval prior to June 1 of each crop year;

(vi) failing to provide an audited and certified accounting of AenP's finances within sixty (60) days after the end of fiscal year 2005/2006;

(vii) failing to provide an audited accounting of the Kaliroy Joint Venture's finances following the end of the fiscal year 2005/2006; (viii) failing to distribute the net profits of AenP to PTG within thirty-five (35) days of the August 15, 2006 audit deadline;

(ix) failing to distribute the net profits of the Kaliroy JV to PTG within thirty-five (35) calendar days after the financial statements of the Kaliroy JV had been audited;

(x) failing to provide the proper tax certificate, according to the bilateral tax treaty between the U.S. and Mexico, documenting taxes withheld from PTG in AenP; and

(xi) failing to perform their duties as managing partners and trustees by maintaining separate and non-commingled funds of AenP and the Kaliroy JV.

31.
PTG further contends that Respondents materially breached their duties, representations, warranties and covenants by failing to perform the duties outlined above, by wrongfully demanding a capital contribution equal to the amount paid for 2005-2006, by misappropriating and depleting the commingled Joint Ventures’ funds for their own use, by charging expenses to the Joint Ventures that were unauthorized and unrelated to the Joint Ventures' operations, by awarding unauthorized bonuses and compensation to Respondents' employees, and by withholding and refusing to refund US$175,000 that was withheld for tax purposes for fiscal year 2003/2004 even though ALP paid no taxes. The facts concerning ALP's wrongful withholding of the taxes from PTG and non-payment of Mexican taxes, along with the facts concerning unauthorized and unrelated expenses, and unauthorized bonuses and compensation, were withheld and concealed by Respondents.
32.
As to the commingled funds, PTG further contends that Respondents admitted that they failed to set up separate bank accounts for the Joint Ventures. Instead, they commingled PTG’s cash contributions, and the cash deposits, credit lines, factored receivables, and accrued profits of the Joint Ventures with their personal and non-Joint Venture business funds. Respondents maintained that they would use the commingled funds as they saw fit to pay for Respondents' personal and non-Joint Venture related expenses and would not give PTG access to the commingled account information.
33.
Further, PTG contends that Respondents' engaged in fraudulent and negligent misrepresentations, constructive fraud, fraudulent concealment, fraudulent nondisclosure and civil conspiracy to commit such acts. (What follows is more or less a direct quotation of the PTG pleadings, left unedited.) As more fully described in the Restated Request for Arbitration ("Request"), Respondents concealed and failed to disclose material information and made fraudulent or negligent misrepresentations prior to and after entering into the Agreement as follows: (1) contrary to Respondents' representations, Respondents had no intent of establishing separate books and records for the Joint Ventures, Respondents had no intent of providing PTG with full and direct computer access to the Joint Ventures, and AenP had not been registered for tax purposes with the Mexican tax authority as required by Mexican law; and (2) after the JVA was executed, and contrary to Respondents' representations, AenP still had not been established as a separate stand alone business and had not registered for tax purposes with the Mexican tax authorities, the registers were not booked according to US and Mexican GAAP, Respondents had no intent of providing PTG workable options or cooperating with the implementation of such options to allow PTG to claim the credit (recapture) against US taxes, Respondents had no intent of changing the structure of the Joint Ventures or establishing the Kaliroy Joint Venture as a stand alone entity, Respondents did not work with their accountants to establish the Kaliroy Joint Venture as a stand alone entity, and Respondents had no intent to register AenP with the Mexican tax authorities or to implement the necessary framework to allow PTG to recapture its Mexican tax credits in the United States. Rather, the negotiation and agreement to such measures by Respondents, and Respondents' concealment, nondisclosure and misrepresentations were an artifice to defraud, mislead and induce PTG to enter into the Agreement and thereafter to cause PTG to delay in enforcing its rights to terminate the Agreement.
34.
PTG further contends that, in reasonable detrimental reliance on Respondents’ misrepresentations and fraudulent conduct and without knowledge as to the false nature of the misrepresentations, PTG was induced to enter into the Agreement, invest capital, labor and its intellectual property rights into the Joint Ventures and to forestall in enforcing its rights under the Agreement and applicable law when Respondents failed to perform. In addition, PTG was induced to enter into an agreement to modify and extend the terms of the Agreement pertaining to contract duration, termination and non-renewal with the understanding they would be allowed to opt out of the Agreement if Respondents failed to perform in accordance with their representations.

Respondents and Cross-Claimants ALP and Kaliroy

35.
Respondents claim that (i) the Agreement's three (3)-year evergreen term was quite clear, and that (ii) PTG breached the Agreement by unilaterally terminating the Agreement after only 1 year. Although the parties signed an Agreement to perform as joint venturers for three years, and PTG terminated after just one year without justification, Respondents do not here claim fraud or misrepresentation by PTG. Respondents only claim that PTG breached a clear three (3)-year agreement and seek relief for that breach and termination of the Agreement. They contend that PTG's breach of its obligations for the Agreement's second and third years caused them substantial damage, and that PTG is not entitled to any "profits" from the Agreement's first year without having met the obligations of its second and third years. Respondents had the responsibility for growing, packing and selling the Produce, plus the obligation to contribute a fifty percent (50%) equity share and borrow all further capital needed (about US$10 million) beyond PTG's fifty percent (50%) equity contribution. PTG was responsible for contributing a fifty percent (50%) equity share toward growing and packing costs, and for licensing the use of its "Sunripe" label for sale of the Products. Unlike the previous two 1-year joint ventures, PTG's duties to contribute to growing costs and to license its "Sunripe" label were a continuing three (3)-year obligations under the Agreement. Their old "course of dealing" had been changed, by mutual agreement. After the US$3.14 million each for 2005-2006, the JVA thereafter provided that the parties would determine the next year's budget and their respective contributions appropriate to their fifty percent (50%) profits interests. The parties were to determine each year how much, not whether, they would contribute, to carry out their intent to have a "perpetual" 3-year joint venture that would "automatically renew" and "perpetually remain at a duration of three years," Respondents deny that the three (3)-year Agreement was merely illusory, or allowed a yearly option to withdraw or not participate.
36.
Respondents deny each claim that they breached the Agreement, and contend:

(i) The JVA did not require ALP to file new papers to obtain a further tax ID number under Mexican law. Moreover, all parties agreed to pursue a royalties mechanism as an alternative to an AenP structure, which would benefit PTG under Mexican income tax law.

(ii) The Joint Venture was operated entirely in full compliance with Mexican law. The parties never formed a separate Mexican AenP, but rather decided to continue to operate within the existing ALP structure, the sole business of which was management of Joint Venture growing activities in Mexico. ALP was registered with the Mexican taxing authority, and no AenP existed which could be so registered. PTG cannot state any instance where ALP's operations violated Mexican law.

(iii) Throughout the parties' joint ventures from 2003 until PTG terminated in 2006, ALP maintained separate, full and accurate records and books of account for all joint ventures' activities. Books and records for the Joint Venture’s operations for 2005-06 are in compliance with U.S. and Mexican generally accepted accounting principles ("GAAP").

(iv) ALP has offered and provided PTG full access to all financial records and books of account pertaining to the Joint Venture. PTG has failed to state any instance where it contends that ALP denied it such access.

(v) ALP did provide a planting program and budget to PTG for the 2006/2007 season without material delay, and in ample time to launch a fully satisfactory season. Nevertheless, no planting program or budget was agreed to, due to PTG's failure to cooperate and provide input as required by Article VII(C) of the JVA, and due to PTG's eventual termination of the JVA.

(vi) Any delay of an audit is solely attributable to PTG. PTG insisted the audit be performed by Deloitte, rather than ALP's usual auditors. ALP provided Deloitte all materials and full access to records to allow Deloitte to complete the audit by August 15, 2006, and there is no record of any complaint by Deloitte about lack of co-operation or information. Any delay in final audit results was solely due to Deloitte's scheduling.

(vii) PTG did receive an audited accounting of Kaliroy Produce's finances following the end of the 2005/2006 growing season.

(viii) ALP denies it wrongly withheld any sums within any required deadline. PTG's termination of the JVA constituted wrongful dissociation under Ariz. Rev. Stat. §29-1052, and §29-1061 allows ALP to withhold distribution as a setoff to its damages, and to withhold any distribution until after the three (3)-year term.

(ix) ALP denies it wrongly withheld any sums within any required deadline. PTG's termination of the JVA constituted wrongful dissociation under Ariz. Rev. Stat. §29-1052, and §29-1061 allows Kaliroy to withhold distribution as a setoff to its damages, and to withhold any distribution until after the 3-year term.

(x) ALP denies it wrongly failed to provide a tax certificate. Tax certificates are issued on account of taxes paid on distributions actually made.

(xi) The JVA did not require separate bank accounts to be established for the Joint Venture. The JVA required only that full and accurate books be kept for the joint venture business, which ALP indeed did in the course of fully accounting for all joint venture funds, as confirmed by the Deloitte audit.

37.
Respondents further contend that, even if any were true, none of PTG's claims of breach could justify PTG's termination, as the Agreement requires written notice of breach and a twenty (20)-day opportunity to cure in order to justify termination. Respondents do not contend that notice of default and opportunity to cure was the sole remedy for breaches - just that the Agreement expressly required such notice to justify a termination on account of breach.
38.
Respondents further contend that no oral modification of the JVA could have occurred to allow PTG to terminate after just one season, or to eliminate the twenty-four (24)-month termination period. The JVA itself requires any modification to be in writing.
39.
Respondents further contend that PTG enclosed its list of Action Items proposing modifications with Mr. Heller's May 1st letter, but none suggested reducing the three (3)-year term. Respondents did agree to several of PTG's listed proposals such as electronic remote access to systems and bank accounts, and others, but no reduction in term from three (3)-years to one (1)-year was either proposed, agreed, or even discussed. Although the Action Items list and Mr. Heller's May 1 st letter sought to extend the renewal deadline to June 30, 2006, that deadline could only pertain to extending the Agreement beyond the 2007-2008 season under the "evergreen" 3-year term of the Agreement. As such, it could not, and did not, alter the three (3)-year term. That is made even more clear by the Parties' correspondence over the ensuing six (6) months, which made repeated references to the "three (3)-year deal," That phrase went undenied by PTG, until after PTG had terminated the Agreement.
40.
Respondents further contend that PTG's breaches and termination created a "wrongful disassociation" under Arizona partnership law that allows them to offset the resulting damages against anything that may be owed to PTG. In addition, they seek an affirmative award of damages for losses caused by PTG's breaches.

E. ISSUES AS STATED BY PARTIES IN TERMS OF REFERENCE

lssues Jointly Agreed by Parties

41.
The parties agreed as follows:

a) Whether either Claimant or Counterclaimants breached the JVA.

b) If Respondents breached the JVA, is there any defense or excuse that would absolve them from liability for such breach?

c) If Respondents breached the JVA, without any defense or excuse that would absolve them from liability, did such breach damage PTG entitling it to recover in whole or part, and if so, how should such damages be measured?

d) If PTG breached the JVA, is there any defense or excuse that would absolve it from liability for such breach?

e) If PTG breached the JVA, without any defense or excuse that would absolve it from liability, did such breach damage Respondents entitling them to recover in whole or part, and if so, how should such damages be measured?

f) Whether the JVA was terminated.

g) If either side breached, whether proper notice of default and opportunity to cure were required and given to permit early termination.

h) The amount of attorneys’ fees, costs and pre-award interest awardable under the JVA.

Additional Issues Stated by PTG

42.
PTG raised the additional issues:

a) Whether PTG’s liability for damages, costs and attorneys’ fees is limited by the JVA.

b) Whether Respondents breached their fiduciary duties, statutory duties, duties as trustee, duty of care, their obligation of good faith and fair dealing, and the terms of the Agreement, or engaged in fraud or negligent misrepresentation, as alleged more specifically in the Amended Restated Request for Arbitration, by:

(i) failing to provide written tax documentation to PTG and failing to refund amounts withheld for crop season 2003-04;

(ii) failing to operate AenP in compliance with Mexican laws;

(iii) failing to maintain records in accordance with USGAAP;

(iv) failing to provide PTG full access to the Joint Ventures’ records;

(v) failing to prepare a planting program and budget for PTG’s approval prior to June 1 of the crop year;

(vi) failing to provide timely audited/certified accountings;

(vii) failing to timely distribute the net profits of the Joint Ventures;

(viii) making misrepresentations and engaging in the fraudulent conduct alleged by PTG; and

(ix) commingling funds of Respondents with the Joint Ventures', by misappropriating and depleting such funds, and by charging non-Joint Venture expenses to the Joint Ventures.

43.
Whether, and in what amounts PTG is entitled to recover damages and/or other relief for Respondents' breaches of its contractual, common law and statutory duties, in addition to:

(i) damages or relief pursuant to Ariz.Rev.Stat. §29-1001, et seq,;

(ii) an accounting;

(iii) constructive trust/escrow of the profits it claims;

(iv) indemnity; and

(v) damages for fraud, negligent misrepresentation, and conspiracy.

44.
If PTG disassociated, the amount, if any, owed to it by the Respondents for a buyout of its interest in the Joint Ventures.
45.
Did PTG have any obligations after Year one (1) or was the JVA dissolved, terminated, or otherwise unenforceable, due to:

(i) mutual agreement of the Parties;

(ii) failure to timely provide and approve a planting program/budget;

(iii) Respondents breaches;

(iv) lack of definite key terms for following crop years;

(v) Respondents' dissolving of the Joint Ventures (if possible);or

(vi) the terms of the JVA.

Additional Issues Stated by Respondents

46.
Did the JVA signed by the parties in 2005 provide:

a. For a one (1)-year or a three (3)-year term?

b. For termination three years hence at the end of the 2007-2008 season?

c. That it would automatically renew for the 2008-2009 season unless notice not to renew were given no later than May 1, 2006?

d. That, each year, the JVA would automatically renew for one season to perpetually remain at a three years’ duration?

e. That, for each year of the JVA, the parties shall approve by mutual agreement a planting program and budget for the upcoming season?

f. That the planting program and budget for the upcoming season shall include the respective financial commitments of each party for the season?

g. That there must be separate bank accounts maintained for each party, and another for the Joint Venture itself? If so, then in which paragraph?

47.
If the JVA was for three (3) years, then, for Years two (2) and three (3):

a. Did PTG breach by refusing to contribute to growing expenses?

b. Did PTG breach by declining to pay the facility charge?

c. Did PTG breach by withdrawing permission to use the "Sunripe" label?

d. Did PTG breach by declining to participate in the JV?

e. Did PTG breach any express provision of the JVA?

f. Did PTG withdraw from the Joint Venture by express will prior to the end of its 3rd year?

g. Does Arizona law define a "wrongful dissociation" as a breach of the Agreement, or an express withdrawal before the end of the agreed term, under Ariz.Rev.Stat. § 29-1052?

h. Does Arizona law provide that damages for wrongful dissociation shall be offset against a buyout price, under Ariz.Rev.Stat. § 29-1061?

48.
What formal notice does the JVA require to terminate the Joint Venture?

a) Did the Joint Venture Agreement Did the Joint Venture agreement [Art.VII(A)(3)] provide that, to terminate sooner than three (3) years due to another party's default, the terminating party must give the defaulting party twenty (20) days’ notice by certified letter and the default party must thereafter fail to correct the default?

b) Is Article VII(A)(3) about twenty (20)-days' notice of default an express provision of the JVA?

c) If Respondents breached the JVA, did PTG give Respondents a twenty (20)-day notice of default by certified mail and an opportunity to cure?

49.
Whether, and in what amounts, PTG's breaches of the JVA caused damage to Respondents from the following:

a) decreased sales volumes and selling prices in Years two (2) and three (3) due to loss of use of the "Sunripe" label;

b) failure to make contributions to growing expenses in Years two (2) and three(3);

c) failure to pay the facility charge in Years two (2) and three (3);

d) damages from wrongful disassociation; or,

e) damages from any other causes?

50.
Whether the JVA’s provision for a US$3,588,708 cap on "all losses in connection with the business of the JV" was intended only to limit PTG's losses from growing and selling crops in performance of the JVA, rather than to allow PTG to commit intentional breaches of the JVA, with impunity beyond that specified amount?

F. ANALYSIS: THE PTG CLAIM

Background

51.
The original contact among the parties was an old family business connection. PTG was based in Florida and wanted access to the Mexican -American trade for tomatoes. For ALP the deal with PTG became strategic too. On the one hand ALP obtained a way to access (with higher expectations than their normal course of business) to the US market through a well known company/label; on the other, ALP found an "investor" that contributed a portion of the working capital. For the first two (2) years, the relationship went reasonably well. Despite outstanding issues, all seem satisfied with the relationship and agreed to take it to the next level: a longer term agreement. This benefited all parties: for PTG a commitment that would allow it to continue serving the east coast of the United States and for ALP a longer commitment to face, in a more comfortable stance, financial commitments derived from the expansion of the business.
52.
We became uncertain why the parties entered into a joint venture. The basis of their business connection seemed primarily to be that PTG would fund crop seeding costs each season and would be repaid its contribution plus a share of the proceeds when the crop was sold. Mr. Esformes, in a letter dated May 21, 2003, which expressed an interest in for three reasons:

• Obtain an equity interest in a Mexican grower/packer/shipper operation of the quality of Agricola.

• Broaden Pacific's market presence through field-grown vine ripe and greenhouse tomatoes.

• Expand the market for the Sunripe brand.

It seems to us that his first reason is unconnected with the other two. He certainly took an interest each year in growing plans. In light of this rationale, the Arbitral Tribunal, however, had expected PTG also to be involved in selling plans: what customers, what sort of customers and, what products? After all, PTG is a well established and experienced firm with involvement in many markets. But, when we heard about the damages claim, we heard none of that. The basis of the damages claim was that Kaliroy had suffered badly from the lack of help by PTG in sales after the contract was terminated. But no party brought up evidence of specifics about any such a lack: no lost customers, no special customer arrangements lost. Kaliroy staff, in their testimony, made it clear that it sold on the open market without much reference to brand and had no particularly unique customer relations.

53.
The sole basis of the hotly contested damages claim was that the cardboard wholesale packing boxes supplied by PTG, lost to Kaliroy after its termination notice, enhanced the value of the product because the boxes contained PTG labels of special value for buyers. It is perhaps this extension of a PTG brand into the Central and Western United States, and Western Canada, that PTG saw as "diversified production", although ironically Mr. Heller testified respecting the Respondents damages claim that the box labels had no or minimal value to buyers unless it was PTG itself who produced tomatoes, because the goodwill lays with the producer not the label. Because the claim for damages affected only sales, it was Kaliroy that would most directly suffer the loss. For what it was worth the claim was advanced by both cross-claimants.
54.
One clause in the JVA requires PTG to offer advice. We heard a detailed narrative of the relationship for about a year, and in that time there were only two short conversations offering advice, and they did not seem to be well received. We emphasize that the JVA contemplated close and regular consultation between the parties, and this did not happen. Part of the reason may have been the attitude by Mr. de la Vega that PTG was merely a creditor. While technically according to the JVA he is wrong, when Mr. de la Vega described the relationship of PTG with Respondents as an "investor" that seems to be close to the reality "on the ground".

The AenP/Royalty Issue

55.
The "AenP-Royalty" issue offers further evidence of confused notions of the parties about why they entered into a joint venture, as opposed to some other form of agreement. This much discussed issue relates to the effort by the parties to resolve a problem that arose as a result of the failure to create an AenP, namely that there was no document upon which a tax claim could be based (see the discussion below about Tax Claims). Key witnesses of both parties testified that there was an attempt to convert the joint venture at least respecting ALP into a royalty agreement, whereby instead of profit sharing PTG would receive a royalty payment for the use of its brand name in packaging.
56.
It was said for PTG that Mr. de la Vega was evasive and fraudulent in this dealings on the AenP issue. We have some difficulty with this. An AenP document was contemplated in the first two single-year agreements, and was never completed. PTG must have been aware of that these earlier agreements also did not exist. It is surprising that this issue did not come to a head during negotiations for the new JVA in early 2005.
57.
On July 21, 2005, just before the JVA was signed by all the parties, Mr. Heller emailed Mr. Mario Rosales, Mr. de la Vega’s assistant, suggesting that the parties "... create a legal entity so that all-cash is segregated...", and Mr. Rosales replied that this created credit issues for ALP. Mr. de la Vega in his testimony explained he no longer wanted to enter into or register an AenP because that would complicate his private dealings, particularly with banks. It is correct that the JVA permits him to conduct other business outside the JVA, but he was never very clear with us as to precisely why he had this sense of conflict, but he apparently persuaded PTG.
58.
In any event, the issue was alive from day one under the JVA, if not before. A detailed memo was prepared by PTG on October 10, 2005, a few weeks after signature of the JVA, outlining possible choices and contemplating changes in the JVA. In a critical meeting between Mr. de la Vega and senior officers of PTG about the problem in November, 2005, it was agreed:

"The current ‘AenP’ Agreement will be re-written into more of a ‘contract to Grow' type agreement. Further, we will keep this Agreement on a fiscal year basis ending June 30 of each year."

Ironically, there was no "current" AenP to be "re-written", a mistake best explained by the fact that the true AenP (in Spanish) was never executed by the parties.

59.
Further negotiation led to a draft agreement to create a "royalty" arrangement, whereby PTG would be paid a royalty equal to a fifty percent (50%) profit for use of the boxing and labels. This too later floundered in 2006 because, in the end, Mr. de la Vega refused to sign the final form.
60.
The draft royalty agreement, like the previous solution, seems to have amounted to a rejection by the parties of the idea of any joint venture, yet it is not clear that anybody actually understood that, or cared. One can be a partner whether one shares in profit or only receives a royalty, although it would be very unusual. And, if one is a partner, one would expect to receive full financial particulars, and that there be no commingling of funds, and hence Mr. de la Vega’s objection to the JVA would continue.
61.
In passing, Mr. de la Vega refused to sign the draft royalty agreement because it involved payment to PTG of share of annual profits sooner than the date set by a formula in the JVA. He was right, in that the new term did that, and the change did not seem to be essential to what the royalty agreement was trying to do, and perhaps better drafting could have avoided the problem. Further, we note that the tentative royalty agreement just cited seemed to involve some assurance about no changes in year-end.
62.
We should also comment, however, on how Mr. de la Vega handled this problem about the wording of the draft royalty agreement. He did not sign it but he did nothing else: he did not tell anybody why he did not sign it, nor did he communicate about the issue with PTG further while the contract was still alive. This sullen response is fairly typical of his attitude after early April, after Mr. Heller demanded changes to the JVA. Suffice it to say Mr. de la Vega is a proud man who was offended by what he considered to be the high-handed manner on the part of the PTG officers, notably Mr. Bill Heller.
63.
We also observe that Mr. de la Vega impressed us in his testimony as a clever and determined entrepreneur but also as vain and sensitive. Mr. Joey Esformes, for PTG, impressed us as a man of great charm, but his successor, Mr. Heller, did not. It is unsurprising that Mr. Esformes maintained a good relationship with Mr. de la Vega but Mr. Heller did not. Mr. Heller had a very different management style than Mr. Esformes, and less experience in dealing with Mexico.

The PTG Claim in General

64.
We now review in detail the relief sought by PTG. In its original plea (second restatement of claim) it called for:

a) all damages to compensate PTG for the breaches, negligence, fraud and wrongful conduct of Respondents as alleged herein;

b) punitive or exemplary damages;

c) an accounting;

d) constructive trust on the profits and capital contribution owed to PTG including a constructive trust on all of Respondents’ bank accounts that contain such funds and to sequester and enjoin transfer of such funds pending resolution of the Arbitration;

e) removing Respondents as trustee and appointing an independent trustee to hold PTG’s share of profits and its capital contribution in trust pending resolution of the Arbitration, and to compel Respondents to relinquish PTG’s share of profits and its capital contribution to the independent trustee or to escrow such funds;

f) access to inspect any copy of the Joint Ventures’ books and records; and

g) awarding PTG pre-award interest, attorneys' fees and costs and entering such and other further relief as is appropriate.

65.
In its pre-hearing brief, however, PTG clarified its claim and we have replaced the term "AenP", with the term "ALP".
66.
It first must be said that, despite the protracted statement of issues, the dispute is really all about who, if anybody, breached the JVA.
67.
In our view, the allegations by PTG of breach of fiduciary duty and breach of loyalty, breach of obligation of good faith and fair dealing, statutory violations, fraud constructive fraud, fraudulent concealment or nondisclosure, and negligent misrepresentation have little if any connection with any of the relief sought by PTG. They have some relevance to only two of the smaller categories of relief claimed, and we shall deal with even these two without reliance on all these other allegations. The others arguably sound in debt, not damages, and, in any event, are acknowledged or, at least, not denied. As a result, we see no point in a detailed analysis. It is sufficient for our purposes to say that for the reasons stated both below and above, we are not persuaded that Respondents acted fraudulently.
68.
First, most of the headings just cited are allegations of tortuous liability, or worse, and in closing argument there was no claim for damages sounding in tort. The Claimant offered a lengthy list of claims, totaling over US$6 million, but none, save one smaller item, sounded in tort. Nevertheless, we shall offer a brief review of the claims and our reaction. We should add at the outset that most of the claims are duplicitous in the sense that they all rely more or less on the same alleged facts.

Accounting Allegations after April 13, 2006

69.
There are in the pleadings many allegations of fault dated 13 April 2006. In general terms, there is no liability by either Respondent for hesitation or recalcitrance after the demand on that date, particularized below, by the Claimant that the Respondents must agree to substantial changes in the contract or face cancellation. Some of the accounting issues did pre-exist the ultimatum, but we are satisfied that they were problems caused by the implementation of a new computer accounting system that PTG encouraged the Respondents to use. There was no contractual responsibility to use it but the Respondents had agreed, but then encountered difficulties in its implementation. We accept that explanation. In any event, the claim confuses promises and assurances, which are of course key distinctions regarding any fraud allegation.

Mixing of Funds

70.
The most serious allegation was of mixing funds, that is mixing funds of the JVA with private funds of ALP. It is not clear that there were any losses as a result, and there was no explicit prohibition of this in the JVA. It turns out that this was the very issue why the Respondents did not want to form an AenP. They mistakenly thought they had no obligation in the absence of such document. On the contrary, there is a term in the JVA permitting ALP to carry on other businesses in connection with the farm. Additionally, it must be said that PTG’s officers were well aware of the situation for many years, and must be taken as having accepted this despite the denials in the pleadings and arguments.

Forensic Audit

71.
The last accounting issue was about a forensic audit. We deal with that in detail below, paragraphs 96-106, where we find that Respondents were guilty of no malicious or tortuous behaviour.

Fraud and Negligence re AenP

72.
Again, it is quite true that there never was an AenP document as discussed above. We do not accept, however, that the fault lay entirely with the Respondents. The JVA was the third contract between the parties, and in each case there was no AenP even though each contract provided for it. It must be said that for at least the first three or four years everybody knew about the missing document and nobody seemed to car about it. It is difficult to see how one can turn that into fraud. It is correct that Mr. de la Vega in early days was not frank about why he did not want one, but later he told PTG the real reason and PTG seems to have been sympathetic, as discussed above. The parties began to work together on a solution, and were still at it when the ultimatum was delivered. The long history of this is detailed in paragraphs 56 - 68.
73.
Tax Claims - the details of this are discussed in paragraphs 84 - 92.
74.
Withholding information. Through 2005-6, there was a steadily worsening breakdown in communication, but the discovery process in this proceeding allowed PTG to recover accounting and other data the absence of which it complained about in the claim.

Damages Claimed by PTG

75.
PTG requests that the Arbitral Tribunal enter an award in its favor for the following damages as follows:

"1. Unpaid Profits for 2005-06 Season:

A. US$3,072,122 as confirmed by audited financial statements (half of the reported US$6,144,224 net profit);

B. Kaliroy: US$1,004,797 in profits, plus US$75,000 for the return of its Capital investment, as confirmed by the Kaliroy Joint Venture's audited profits, for a total of US$1,079,797.

2. Tax-related damages:

A. US$173,690 tax payment that was wrongfully withheld by ALP (2003-04);

B. US$502,431 tax payment from ALP (2005-06);

3. Fraud and improper use of Joint Venture funds:

Approximately US$233,000 in profits from the approximately US$306,000 of improper charges as well as the approximately US$160,000 in salary to Jorge De la Vega that must be added back to the Kaliroy Joint Venture’s 2005-06 income and expenses.

4. Pre-award interest. PTG requests that Tribunal enter an award for pre-award interest of US$1,010,682 based on a pre-award interest rate of 10% (as set forth at Arizona Revised Statute 44-1201) as set forth below:

A. US$645,146 in pre-award interest for unpaid profits for the 2005- 2006 season;

B. US$147,572 in pre-award interest for Kaliroy's unpaid profits for the 2005-2006 season and the US$75,000 in unreturned capital investment;

C. US$80,610 in pre-award interest for its wrongful withholding of tax for the 2003-2004 season;

D. US$105,511 in pre-award interest for taxes for the 2005-2006 season; and

E. US$31,843 in pre-Award interest for Kaliroy's fraud and improper use of joint venture funds for the 2005-2006 season.

5. PTG's Total Requested Damages (including Pre-Award Interest): US$6,071,721. "

76.
At the hearing, Mr. Wilson confirmed: (Transcript p.930)

"The damages we’re seeking are comprised of the amount of money that was withheld with respect to Kaliroy, which is $1,004,797, plus $75,000 in retained capital, which is a total of $1,079,797. There was also the amount of audited profit from the ALP, which is $3,072,122. There is the tax payment of $173,690 that was withheld by ALP for which we received no documentation, we paid double taxes. There's a $502,431 tax payment, and there's the interest on these of a million dollars. And when you deal with the issue -- which that totals up to about 5.8 million, and then whatever portion, if any, of the monies that were identified by Ms. Marta Alfonso that were from the account going for various entities, that would be another couple hundred thousand, that would total about $6 million in damages. It's all in our brief..."

77.
No further relief was sought, and we note that there in the briefs and at hearing was no request for punitive or exemplary damages, constructive trust, an independent trustee, or inspection. Moreover, during a pre-hearing conference call, both parties abandoned any claim for punitive or exemplary damages. Some of the other demands perhaps became modified by the disclosures made during this proceeding, or perhaps because the agreement, on notice by Respondents, was terminated. In any event, we are satisfied that we ought to reject all those other forms of relief as not established on the evidence.

Unpaid Profits

78.
It first must be noted that, while the Claimant alleged a breach of contract and damages, the detail of the claim clearly indicates a claim in debt. Items 1A and B relate to the profit share of PTG under the JVA, due and owing pursuant to the JVA. That liability is not in any way related to any breach of contract by Respondents, and indeed was not disputed by Respondents. We do not understand why PTG chose not to describe the claim as a tort as opposed to a debt. We need not consider any of the other allegations made by PTG to decide that this is a valid claim. In addition, no argument was made before us that this debt was no longer owing even assuming PTG was guilty of a fundamental breaches of the JVA during the current year.
79.
Item 1A was effectively acknowledged by Mr. Parker at the Hearing, as he contended only that Respondents could set it off against their damage claim, which is now moot point in light of our award. This item is simply PTG’s share of the profits under the JVA from the previous crop year, due early in the current year, and finally confirmed by an independent audit. Nowhere in the evidence do any of Respondents’ witnesses deny this debt, testifying only that the payment was delayed because PTG demanded an independent audit, which was delayed. Thus, we find that Respondents owe Claimant the amount claimed by Claimant of US$3,072,122. It may be that this can be claimed against both the Respondents, but claim was asserted only against ALP. There is a certain logic to that as these are the profits for the growing part of the operation. (see the discussion in paragraph 147)
80.
Similarly, item 1B has not been denied by Respondents, and the amount has been confirmed by audit. The JVA specifically gives a share of Kaliroy's profits for the previous year to PTG and no witness denied this. Again, it seems to us to be a claim sounding in debt rather than damages. Again, no argument was made before us that this debt was no longer owing even assuming PTG was guilty of a fundamental breaches of the JVA during the current year. Thus, we find that Respondents owe Claimant the amount claimed by Claimant US$1,079,797. Again, it may be that this can be claimed against both the Respondents, but this claim was asserted only against Kaliroy. There is a certain logic to that as these are the profits for the selling part of the operation.

The Tax Claims

81.
The first point to be made with regard to items 2A and 2B is that, other than the specific default alleged, these claims have no bearing on any of the other allegations by PTG against Respondents.
82.
The 2A claim first arose under the 2003-4 agreement. The 2003-4 agreement had a similar "AenP" clause as the 2005-6 agreement, and the failure of the parties to set up an "AenP" led directly to this situation. A jurisdictional issue arises that has not been raised or addressed by any party, although reference was made to the 2003 claim in the pleadings. Particularly because the claim is admitted, and the obligation on both parties to execute an AenP could be described as continuing, justice requires us to add it to the award. 2003 was the first year of profit, and in 2004 income taxes were paid in Mexico by ALP on the profits, and half the cost was charged to PTG. PTG then had to pay taxes in the USA for its share of those profits. This could have been avoided by relying on a tax certificate from the government of Mexico pursuant to a bilateral treaty between Mexico and the United States designed to avoid double taxation. ALP could not produce this tax certificate because it had not declared PTG as a joint venturer in its tax returns in Mexico.
83.
PTG’s Position (from pre-hearing brief) was that because PTG could not claim a tax credit in the United States for the amount that ALP withheld from PTG respecting Mexican taxes, PTG was double taxed. Thus, PTG must receive US$173,690 in order to make PTG whole.

PTG’s argument was:

Mr. De La Vega testified that he was going to repay this amount to PTG. But he never did.

For the 2005-06 season, the impact on PTG’s inability to claim tax credits is even greater, US$502,431, based on the increased profits that year.

84.
We accept the idea that, if the AenP had been registered in Mexico, and returns filed, ALP would have been required to pay tax in respect of profits and half the profits would be assigned to the partner PTG, so that taxes in Mexico would be paid in its name. We accept also that, if all that happened, PTG probably could have avoided a double taxation in the US on the same profit by production of a tax certificate from Mexico. If that was going to happen, then the failure to register the AenP can be described as a direct cause of the double taxation. As we understand it, however, there is no evidence before us regarding how much in US taxes could have been avoided. The claim instead is for funds payable to the Mexican government.
85.
As it happens ALP was not required to pay any tax to Mexico because it had a loss carried forward and no taxable income. This came from the crop failure in 2004-5, PTG shared in that loss and possibly also received due credit from US tax authorities. We do know however, that the sum of US$173,690 was deducted by the Respondents from PTG’s profit share for taxes, but was not in fact paid out in taxes. On that simple basis, an award is justified for payment of US$173,690. It has nothing to do with the AenP, and any other defaults by ALP or Kaliroy.
86.
In defence of this claim, Mr. Parker argued that:

The US$175,000 represented half of the expected 2003-04 seventeen percent (17%) tax liability expected after the June 30, 2004 season-end. Subsequently, however, an NOL belonging solely to Agricola was available under Mexican law, and Agricola used that NOL to eliminate any tax payable. Agricola retained the US$175,000, as it represented the value of one-half of its NOL utilized to eliminate any tax payable. PTG, however, staunchly continued to insist that the US$175,000 was fully refundable to PTG. The parties never came to an agreement on this issue, although Mr. de la Vega did say he'd pay PTG the amount, simply to keep the peace. (The Arbitral Tribunal understands Mr. Parker in referring to NOL was referring to net operating loss).

87.
The flaw in this reasoning is that the assertion belonged solely to ALP. On the contrary, this was so only because ALP failed to report to Mexican authorities the existence of a joint venture in Mexico with PTG, and thus received a tax receipt addressed only to itself. We reject Mr. Parker’s circular argument. We prefer to think Mr. de la Vega tried to keep the peace because it was the right thing to do. Item 2A should be allowed accordingly.
88.
PTG also claims that, in the absence of a tax certificate, ALP again cannot deduct taxes from PTG’s profits share for 2005-6, and we so deciare and the 2B claim also is accordingly allowed against ALP for US$502,431.
89.
While this issue clearly is a consequence of the failure ever to complete an "AenP", one of the major breaches alleged by PTG, it has nothing to do with any of the other allegations as noted above in dealing with the other claims. Moreover this breach of the earlier contract must have been known at the time of execution of the JVA contract. In any event, it can be treated merely as an adjustment to the profits claim, and unrelated to any damages claim and an award will be made on that basis.

Improper Charges

90.
The US$306,000 in "improper charges" under claim 3 is based upon a forensic audit of Kaliroy’s books for 2005-6. PTG later reduced this claim to $233,000 because only some of the claims were validated by the forensic audit. The claim re: Jorge de la Vega, (discussed below) was a separate claim. PTG had referred to this claim as being for $160,000 but the audit reported that it was for $150,000.
91.
According to Mr. Doxey of Sigma Accounting, Kaliroy had produced financial statements for 2005-6 respecting the JVA which demonstrated gross revenue of US$4,090,304 operating expenses of US$2,031,000 and a net operating profit of US$2,058,000.
92.
PTG engaged an experienced forensic accountant, Marta Alfonso, from Florida to look "... at the available documentation and determine if there were expenses that raised issues or questions".
93.
Ms. Alfonso calculated the total Adjustment to Reduce Expenses at US$449,735.
94.
Mr. Doxey in his testimony raised a question whether Ms. Alfonso had seen all the available documentation, although he did not produce any new documents. In her testimony, Ms. Alfonso explained that she sent a team to Nogales; and,

Based on their narration back to me, they went through boxes that were - that they felt and apparently there was some identification of boxes that related to the expenses that we were to examine, and accordingly what they did was, since it was a very condensed time frame -and you can imagine — they described to me there were a lot of boxes. I've had cases where there's thousands of boxes. So what they did was they copied sections of work papers that they felt relevant that related back, they were copied and brought back to our offices.

95.
Ms. Alfonso refused to label any of her findings as proven illegal, fraudulent, or merely un-documented. She also described some as unusual, and others as difficult to read or understand.
96.
In the case of several items where no records were found, for example freight inspections, bonding, fuel, equipment rental, and entertainment, common sense says, and she agreed, that there must have been expenditures, but she did not locate the receipts. The clear inference from her report is that there had been sloppy handling of documents. Sloppy documentation is not fraud, although it is a breach of the duty to keep proper accounts. We conclude there was poor handling, but we will not find a breach of contract claim against Kaliroy on that ground alone unless satisfied that the expenses were not justified.
97.
Mr. Doxey said that he had done a cursory audit of these records applying the IRS standard whether a disbursement was "ordinary and necessary". In addition to this evidence we note that the inadequately documented expenses are relatively small compared to the income, nothing that justifies an inference of an attempt to deceive on the part of Kaliroy.
98.
Three questions by Ms. Alfonso stand out: (1) she found receipts for satellite television subscriptions, and asked what business relevance these had, (2) she found expenses for the operation of an automobile by Mr. Eduardo de la Vega at Nogales despite the fact he lived miles away in Sinaloa, and asked why, (3) she asked why Kaliroy that year paid US$150,000 to Mr. Jorge Luis de la Vega, who is the brother of Mr. Eduardo de la Vega. Respecting this last item, she was told by one employee that he had been paid on behalf of others because he had a US Social Security card.
99.
As to her first question, Mr. Doxey provided sworn testimony that there are television sets in the warehouse at Nogales, and he had seen them in operation. He added that this was not unusual in Nogales, and indeed that he had a television set in his office. We infer that this is a fringe benefit for low-paid packers in Mexico. We find these expenses ordinary and necessary in the circumstances.
100.
As to her second question, Mr. de la Vega explained that he traveled back and forth regularly between the farm near Culiacan, Sinalao, and the warehouse at Nogales in his private airplane, which he piloted. He rented a vehicle at Nogales for his use when he was there. This seems reasonable to us, although we note again the sloppy recordkeeping.
101.
As to the payment to Mr. Jorge de la Vega, Mr. Eduardo de la Vega swore that his brother Jorge had nothing to do the Kaliroy business and should not have been paid. Curiously, Mr. Doxey in his testimony disagreed with his employer and said that the brother had been performing services for Kaliroy and that he, Mr. Doxey, personally had arranged for this payment. In our respectful view, there is something more to this than meets the eye. We accept the evidence of Mr. de la Vega and refuse to accept that the payment to Mr. Jorge de la Vega was ordinary and necessary.' As a result, the sum of US$150,000 should be removed from expenses, and the claim by PTG for its share of profits in Kaliroy adjusted upwards by US$75,000. (i.e., half of the sum of US$150,000, as PTG was entitled to only half the profits of the JVA)
102.
We find that there is no significant connection between the bookkeeping issues and the other allegations by PTG. Moreover, with due regard to the explanatory evidence offer by Mr. Doxey, we are not persuaded that the absence of documentary support proves that there were any unjustified expenditures. Nor were there flagrant abuses alleged in the pleadings proven. As a result, the Panel makes no award for any claim under this head save the claim involving Jorge de la Vega.

Conclusion

103.
In our view, the Awards in paragraphs 87, 88 and 101 should be characterized as upward adjustments of the claim for unpaid profits in paragraph 1A.

G. RESPONDENTS’ COUNTERCLAIM FOR DAMAGES

104.
The Respondents’ claim for damages is based on upon anticipatory repudiation by PTG in that it had threatened not to perform unless changes were made to the contract.
105.
On May 1, 2006, Mr. Heller at PTG wrote to Mr. de la Vega in what he described as the "Action Item Summary" that "... our intent to continue this relationship is contingent upon the satisfactory resolution of points... (in the Action Item Summary)." The Arbitral Tribunal concludes that this was a clear threat to repudiate the JVA.
106.
Lest one have concern whether they should be seen as threats, Mr. Heller in an email on September 18, 2006 to Mr. de la Vega in response to an enquiry about a new growing agreement, said:

As for the 2006-7 crop as we mentioned in the notice given in our May 1st letter, we have no intention of going forward with AenP, Kaliroy Pacific or Bioparques unless all the issues we have been discussing on taxes, sources and uses of cash virtual transparency and access to all bank accounts were established. You have since told us it could not be done, and we have made it clear we do not intend to go forward.

107.
We conclude that Mr. Heller meant what he said.
108.
The Action Item Summary was first sent to Mr. de la Vega by email from Mr. Heller on April 13, 2006. It contained more than twenty demands, (mostly about accounting issues) but we only note the first section for our purposes:

Pacific Tomato Growers, Kaliroy Produce and Agricola Primavera agree that pursuant to Section VII of the joint venture agreement (JVA) the May 1 deadline for notification of intent not to renew the JVA is waived so that the agreement may be modified prior to the end of the 2005-6 season, in preparation for the 2006-7 season.

• Agreement modifications -

- The timing of the recovery (payout) of the cash contribution to AenP by each party once the crop costs have been recovered must be clearly defined.

- The full 80% distribution of proforma profit, as its collected, is to be paid in installments before the end of crop fiscal year of AenP, K-Pac and Bioparques.

- The Mexican authority tax documentation will be provided to PTG to support all taxes withheld from the profit distributions of AenP and Bioparques as soon as they are available, by the end but no later than the 17th of the month following the distribution of profit.

- Audit engagement letters for AenP and Kaliroy Pacific will be provided to PTG in advance of each audit.

- K-Pac will participate in the funding, on an agreed percentage basis, of the Sunripe brand marketing activities.

- Unrestricted electronic remote access to all systems and bank accounts of AenP, K-Pac and Bioparques.1

109.
The third item, which was about the Mexican "tax clearance item" related to the issues discussed above about the Tax Claims. These had been under discussion at least since September, 2005, long before execution of the JVA, but were not yet resolved as of April 13, 2006.
110.
As to the last item, Mr. de la Vega testified that he had agreed before April 13 to unrelated electronic access, but it turned out that this required him to install a PTG-compatible accounting system, a complicated project that had been underway for some months. He was not contradicted in this.
111.
At least two of the terms summarized in 108, the change in the dates when profits are to be paid, and a commitment to pay a share in brand marketing, involve material changes to the JVA. We are content to deal only with one, the change of the contractual date for payment of profits.
112.
We focus on the demanded change of the profits payment term because it is indisputably material. Yet other terms in the Action Item Summary, not all of which are quoted, also arguably involve enlargement, clarification, or even restatement of yet other terms in the JV agreement. Some of these were accepted in whole or in part by Respondent, even if it was slow to comply. There was never any formalization of any amendments to the contract.
113.
Mr. de la Vega testified also that he had never agreed to an early distribution of profit as required by the second point. He added that he had always refused to so agree, and again was uncontradicted. In the PTG record of a conference call set up by Mr. Heller on April 26 to discuss the Action List with Mr. de la Vega it is noted that "Eduardo had many concerns regarding this point". He agreed to a modification of the date as to when re-payment of the cash contribution be repaid, but never agreed to a change in the date when the profits would be distributed. Indeed, we note that it was his consistent view in this regard that led to his refusal to sign the "royalty agreement", which would have settled some of the other points in dispute, because it had it contained term providing for an early repayment of profits.
114.
It is worth noting also this passage from the PTG call record for April 26:

"Billy opened the call with a brief preamble to set the tone for the meeting. In essence, Billy stated that it was the intent of the partners to continue on with our partnership provided that together we have satisfactorily resolved the points outlined in the ‘Action Item Summary, (AIS)’ dated 4/15/06. Further, that these major steps have to be completed by no later than 6/30/06 (AenP’s) fiscal year end.

Eduardo also stated that he wanted to continue on with the relationship, but that he had concerns that they (Agricola/Kaliroy Produce) might not be able to meet all of the requirements lined out in the AIS at all, let alone by 6/30/06. With that we started to go over the AIS points...".

115.
We acknowledge that, on July 19, 2006 a new list of demands was sent that did not demand a change in the JVA respecting profits, or any other demand for a change in the contract. But the other threats were never retracted.
116.
Mr. Parker submitted that Mr. Heller’s quoted May 1 statement, following on the April 26 discussion, amounted to an ultimatum that PTG would not perform the contract unless it was amended as stated, and says that this is an anticipatory repudiation. PTG in reply emphasized the other defences to the Counterclaim.
117.
In our view, the Counterclaim is made out. A threat not to perform a contract is a repudiation of the contract as defined by Article 250 Restatement of Contracts-2nd, which defines repudiation as "... a statement by the obligor to the obligee indicating that the obligor will commit a breach... and, because no adequate reassurance was offered when sought under Article 251, then, pursuant to Article 253 this repudiation gives rise to a claim for damages for total breach It is no less a threat not to perform if the threat is accompanied by a offer to perform only if new terms to the contract are accepted. See United California Bank v. Prudential Ins. Co., 681 P.2d 390, 431 (Ariz. App. 1983).
118.
If unhappy with the other party, PTG under the JVA had many options - it could negotiate in good faith, or seek arbitration, or, if a Respondent was in breach, sue for damages, or give notice of termination under Article VII (A)(3) of the JVA. It chose none of them. (This last power, is conditional on the giving of an opportunity to cure, but this power was never invoked by PTG.)
119.
It was argued for PTG that damages for this breach were not justified because Respondents were themselves guilty of material breaches of contract. To assess this properly we first must ask what damages either was guilty of before the threats were made. We are very sympathetic about breaches while under threat. People under threat often exercise bad judgment. Moreover, the fact that issues alive from 2003-4 were still outstanding in 2005-6 can hardly be laid entirely at the door of the Respondents. If PTG took them seriously, it could have refused to negotiate the 2005 JVA without a resolution of these issues, which did not happen as a condition of the making of the 2005 JVA. The fact that it did not encourages us to think that they were not material breaches, and in this Award we have made this point in several ways. Beyond that, there are the allegations about accounting and disclosure errors, which largely were cured by the Deloitte report and otherwise during the hearing. We conclude that in April 2006, when the threats were first made there were no material breaches, save for possible accounting issues, now largely resolved.
120.
We conclude that there was a valid claim for damages for an anticipatory breach of contract

Nullification of the Renewal Clause

121.
The counterclaim relates to future losses allegedly about to occur in the two remaining growing seasons in the contract, 2006-7 and 2007-8, and thereafter, caused by loss of the packaging and the PTG premium brands, notably Sunripe. The PTG premium brands, notably Sunripe, were used for sales in 2006 respecting the 2005-6 crop.
122.
Mr. Wilson argued that, whatever else, PTG gave notice of an intention under the JVA not to renew the contract for those years. If he is right, that is an end to the claim..
123.
Clause V11 (B) of the JVA deals with this question:

B. RENEWAL AND EXTENSION. This Agreement may be renewed for the 2008-2009 Season and following seasons in the following manner:

This agreement shall automatically renew for the 2008 - 2009 season unless either party provides written notice of its intent not to renew this Agreement no later than May 1, 2006.

2. Each year, this Agreement shall automatically renew for a period of one season with the result that this Agreement shall perpetually remain at a duration of three years unless either party provides written notice of its intent not to renew for an additional season no later than May 1 of the current season.

124.
Properly understood, the default rule under this agreement is an automatic renewal, but any party is at liberty to stop a renewal and terminate the JVA contract by simple written notice. The terms of the notice are set out in Article VIII of JVA.
125.
It is said for PTG that the letter of May 1, quoted above, is a valid indication of the right to cancel the JVA at the end of the first year. The Arbitral Tribunal finds to the contrary that the letter was a conditional notice and did not comply with Article Vlll of the JVA. This condition, however, was removed by the September 18, 2006 email, also quoted above. In the age of email, and having regard to the fact that the emails seem to have been a customary mode of communication between the parties, the Arbitral Tribunal finds that the September 18 email substantially complies with Article VIII.
126.
Of course, the September 18 email was too late to give a notice due on May 1. If the notice was too late to cancel the renewal for 2006-7, the question then is whether it at least can serve as notice of cancellation effective for the 2007-8 season. The answer turns on whether Article VII(B) offers a right to cancel season by season, or only to cancel the next three-year term.
127.
Mr. Parker argued that the proper interpretation of Article VII(B) is that the basic JVA is for a three-year term, which is automatically renewable unless notice is given:

If one is to follow the rule of construction of contracts that Justice Feldman described, which is to interpret the contract by reference to the whole of the contract to try to give meaning to each of the provisions of the contract, you cannot overlook the three-year duration clause, and you cannot overlook the clause saying perpetually remain at a duration of three years. You cannot conclude that the agreement simply can be shucked off for the second year because the renewal provision says that if you give notice of intent not to renew by May 1st, 2006, that pertains to the fourth season, which commences after the 07/08 season.

When looking at the entire contract, you have to ask this question: What’s the point of making a three-year (3) agreement if you can just refused to proceed in the second year?..."

128.
We prefer the interpretation that the wording of VII(B) of the JVA, by its own terms, is all about renewals beginning in the 2008-9 season, i.e., after the expiration of the initial three-year term. The curiosity is that notice is to be given as early as 2006, three years before the first 3-year renewal, which is confusing but is the term agreed to. The only interpretive problem is what is meant by "each year" in clause 2 of the Article. It must be reconciled with clause 1, which speaks only of a renewal effective 2008-9, which contradicts any interpretation of clause 2 that would include a cancellation right in 2006 to cancel for 2006-7. The view preferred by the Arbitral Tribunal is that Article VII(B) does not authorize any cancellation of automatic renewal effective before the 2008-9 season.
129.
In the result, neither of the two original renewal years were cancelled, but any further three-year renewal was cancelled by the September 18 notice. The damages claim is thereby restricted to two seasons.

Growing Agreement for 2006-7

130.
Mr. Wilson argued that one cannot assess damages, unless one first concludes that there was a growing agreement, and there was not. He is right to say that, before we proceed to quantify damages we must first make a decision about the growing agreement.
131.
Article VII(C) of the JVA provides:

For each year of this Agreement, the parties shall also develop and approve by mutual agreement a planting program and budget for the upcoming season. The planting program and budget for the upcoming season shall include but not necessarily be limited to the number of hectares to be planted, the commodities to be planted and the respective financial commitments' of each party for the season. The planting program and budget for the upcoming season must be approved no later than June 1 of each year.

132.
Article IV(D) also provides:

Except as set forth above or with the prior written consent of the Party making the loan or contribution, no Party shall be required to: (i) make any additional capital or asset contributions to the Joint Venture or AenP or (ii) make any loans or extensions of credit to the Joint Venture or AenP.

133.
it was said for PTG that this term is a mere agreement to agree and did not create any legal obligations. It was further argued that, in any event, no growing agreement for 2006-7 was made and this rendered any renewal frustrated and unenforceable.
134.
The issue is not quite that simple. It is quite correct, from the very wording of term about the growing agreement, that the parties expected there would be a new growing agreement each year. But the parties entered into a joint venture agreement and as a result, both parties had a good-faith obligation to try to make a growing agreement for 2006-7.
135.
Mr. de la Vega was late in making a detailed offer for new growing agreement, but this delay does not seem to be important. The reality is, as stated above, PTG refused even to enter into negotiations for growing agreement until its various conditions were met. PTG was in breach of its good-faith obligations.
136.
The fact remains that there was no growing agreement, and the contract assumes one would be made and without it the JVA may be frustrated. Indeed, it can fairly be said that, notwithstanding the renewal clause, the JVA treats a new growing agreement each year as a condition precedent its continuation.
137.
It was said for the Respondents that the failure to have a growing agreement was because PTG in bad faith failed to agree to a reasonable growing proposal, and invited the Tribunal to "fill the gap" as did the Arizona Supreme Court in Schade v. Diethrich 760 P.2d 1050 (Ariz. 1988).
138.
In Schade, the Court enforced an "agreement to agree" between employer and employee, where the employer promised to develop an "equitable and fair separation agreement" with the employee at a later date. The terms of the separation were not determined at the time of the agreement. However, the contract was enforceable because both parties had acknowledged its existence, and its terms were "sufficiently definite" to permit the parties to begin performance. See Schade v. Diethrich 760 P.2d 1050 at 1059.
139.
The Schade decision is an example of the extended application of Article 33(1) of the Restatement of Contracts 2nd, which provides:

Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

140.
The Court in Schade was satisfied, on the facts in that case, that there was reasonable certainty about the missing terms. The question for us is whether that is so in this case.
141.
Mr. Wilson fairly argued that there is no reasonable certainty in this case about the missing terms:

The Agreement pertains to the farming and selling of produce. Thus, as expected, the essential terms of the Agreement are: The area to be planted, measured by number of hectares; the types of produce (commodities) the parties will grow; The planting schedule or "program;" the budget for the growing, harvesting and selling operations; and the amount each party will contribute to the budget.

142.
When asked what terms the Tribunal should impose upon the parties, Mr. Parker suggested either adoption of Mr. de la Vega’s proposal, which involved substantially more capital, or resort to the previous year's agreement. Neither are persuasive. The growing issues are far too complicated for this Tribunal to impose terms on the parties. In other words, the Respondents have failed to meet the "reasonable certainty" test.
143.
On the other hand, we are of the view that the parties, had they acted in good faith would very likely have made a growing agreement, although we do not know on what terms. Assuming, as we do, that the only reason for the failure was the failure of PTG to negotiate in good faith, then the action for damages for breach of contract can survive.

H. QUANTIFICATION OF DAMAGES

Damages Claimed

144.
In the TOR, Respondents made these claims for damages:

a. decreased sales volumes and selling prices in Years two (2) and three (3) due to loss of use of the "Sunripe" label,

b. failure to make contributions to growing expenses in Years two (2) and three (3),

c. failure to pay the facility charge in Years two (2) and three (3),

d. damages from wrongful dissociation, or

e. damages from any other causes?

145.
In the trial evidence, and written and oral argument, only claim (a), based on loss of label, was advanced.
146.
ALP and Kaliroy divided the farm business into two parts. ALP was responsible for seeding, growing and harvesting. Kaliroy was responsible for packaging and selling. It is obvious that some part of this claim belongs to ALP and other parts to Kaliroy, and yet others are not clear, or are hopelessly mixed. No attempt was made by them to distinguish the two claims, and indeed they were joint counterclaimants from the start. Except where the context is clear as to which of the two was active, we propose throughout the following analysis to simply use their joint names or the terms "the Respondents". Moreover, we will name where possible one or the other as a judgment debtor where it seems appropriate to us even though it is arguable that both are judgment debtors for all as joint venturers.
147.
Respondents never advanced details to support claims (d) and (e).
148.
As to claims (b) and (c), we do know that a crop was planted and harvested each year. Having found a breach by PTG, we must conclude they had a duty to fulfill the contract through to its term - three years. But ALR/Kaliroy had a duty to mitigate any loss caused by the failure of PTG to contribute to growing and harvesting costs. We have no idea how this was financed for the last two (2) years, and no information whether the terms were more or less favourable that the tough terms in the JVA. These claims must fail for lack of that information.

Introduction to the Labeling Claim

149.
The claim is for the loss of premium prices as a result of deprivation of the PTG top brands for wholesale packaging. PTG argues that there is no or virtually no premium pricing.
150.
Three experts testified on the topic. Dr. Rausser for the Respondents, Professor Hayenga and Mr. Garcia for PTG. Unlike Professor Hayenga, Dr. Rausser has no background in the tomato industry. He is, however, a very highly reputable economic analyst. Mr. Garcia is a buyer and has good knowledge of the Mexico-U.S. border sales at Nogales. There was also reference to research by Dr. Cook.
151.
Dr. Rausser in his study did not examine actual sales by Kaliroy during the 2006-7 season with a view to isolating differences between that season and the last season where the PTG brand was employed (2005-6). (It is acknowledged by all the experts that crop problems and market issues can create major differences from season to season.) Instead, he looked backwards and made a comparative study of Nogales prices against Florida prices, relying on USDA statistics. He concluded that there was a very substantial premium - thirty to fifty percent (30 - 50%) attached to the PTG brands.
152.
The main criticism of the Rausser Report by Professor Hayenga was that there are immense differences between the Nogales (Mexican) and Florida markets. He also complained that the industry has never heard of such high price premiums. In response to this criticism, Dr. Rausser had staff do "reality checks", calling key people in the market and inquiring what their experience was about premium pricing. The results of those checks did not confirm his very high calculations, but only supports occasional and relatively small premium. Professor Hayenga also did checks and confirmed these comments. Mr. Garcia adds that this was his experience also.

Background: The Produce Industry

153.
The produce industry is characterized by high levels of concentration on the procurement side, in both food service and retail sectors. On the production side in general the growers are highly fragmented, often lacking the critical mass to influence markets. Professor Hayenga stated that the top-10 retailers would well exceed a 65% concentration level and a similar situation exists in food service (restaurant supply), a dynamic that leads to fierce and aggressive competition.
154.
The produce industry is also a collection of commodity markets, homogeneous, undifferentiated offerings, with the perishable nature of supply greatly influenced by weather and pest infestations. Mr. Garcia noted that tomato prices can be more volatile than the stock market. From various testimonies one summarizes that premiums are achieved for clearly differentiated offerings such as a new variety, e.g., greenhouses growing a range of produce that appeals to food safety advocates, unique packaging, and special services around quality and support.
155.
We accept the view of Professor Hayenga that labels in and of themselves don’t count where corporate purchasing has grown to be sophisticated and the industry structure does not allow for unwarranted premiums. In other words, a Wal-Mart with the philosophy of "Every Day Prices" cannot be out of line with a competitor for the same product.
156.
In the testimony of (Dr. Rausser, Professor Hayenga and others) the subject of industry brands surfaced. These were not positioned as consumer brand equities but rather the integration of labels with companies that had over the years projected an image of trust and reliability and perhaps offering special services, one being consistent quality.
157.
Professor Hayenga noted that consumer equities were rare in produce probably because of the investment required. He defined the market driver as being the consumers' willingness to pay more for an offering warranted by the characteristics of the product. Continuing, he gave the example of a Sunkist case study which is referenced here since it relates to and provides a dimension for analyzing Dr. Rausser’s thirty-fifty percent (30-50%) premium range.
159.
Sunkist (not a PTG brand) is one of the few consumer brands in produce to be distinguished from a wholesale brand or label. In a mid 80's study the brand value or premium for Sunkist was five percent (5%) of the sales value at the consumer level and they were spending two-three percent (2-3%) of total sales on advertising and promotion or around US$12 - US$15 million per annum to achieve that result Comparing that to PTG investment of US$300,000 annually, Professor Hayenga concluded that the professional buyer will not be influenced by the level of investment by PTG at least when it comes to paying a premium.
160.
The Arbitral Tribunal accepted the following information and insights about the industry:

(a) The experts agreed that in the U.S.A., the tomato market is very much a national commodity market where the various varieties float together, and the supply is influenced by weather and disease developments. Within this structure, price premiums are paid but they tend to be variety-specific. Greenhouse cultivation has enjoyed a specialty status but product has grown to a point where this offering can be described as a commodity, a common development in produce.

(b) Mr. Cook commented that for specialty, niche products with limited supply, it is generally easier to command a consistently higher price. But as sales of greenhouse tomatoes are now playing a critical role in retail profits, price in turn plays a more influential role in purchasing transactions. Increasing competition is driving down grower margins in this sector. Yet growers will still work towards a differentiated offering, such as the emphasis on grape tomatoes and smaller cluster tomatoes.

(c) Mr. Cook also commented that greenhouse tomato production soared in the early 90's, and while it has stabilized in the United States and Canada, the Mexican industry is still growing rapidly ALP production of mesh house tomatoes grew from twenty hectares in 2003/04 to one-hundred and sixty hectares in 2006/07. This was not an isolated event and demand growth has been outpaced by expanding supply. Mexico now has more greenhouse capacity than-the US and Canada combined.

(d) Records indicate that the U.S. consumption of fresh tomatoes is evenly split between retail and food service sectors. Yet in the Hayenga/Rausser "reality checks" the interviews only included intermediaries in the supply chain, that is, brokers and re-packers. In reviewing the content of interviews there is clear reference to a premium price usually in the range of US$0.00 - US $1.00 per carton, but generally qualified with a reference to a special quality or service provided or even a contract agreement. There was also references to the fact that price premiums were generated in short supply markets and there was no guarantee. Mr. Parker said that they talked to the wrong people, i.e. just brokers. But it is to brokers that Kaliroy sold.

(e) Mr. Garcia in testimony commented that there can be a US$2.00 difference in price. He emphasized that the different sizes or counts will lead to considerable price variations. He emphasized that size was a major factor in determining price and was often customer specific. He also indicated that shippers will upgrade the USDA #1 to an improved grade of ninety percent (90%) as an example of using quality to differentiate the offering. (The US Department of Agriculture has a set of standards for tomatoes.) Garcia added that the price premium was compensating for either a lower product utilization to make the higher grade or to cover input costs associated with a special quality. Finally it was also observed that some retail accounts do some fine tuning of what they want in a delivered product,

(f) Mr. Cook repeatedly reports on or makes reference to the need for consistent quality in Mexico’s greenhouse operations. The concern here may be linked to premiums for guaranteed quality.

(g) It is hard to conclude that the re-packer will pay much of a premium given their value adding role as a middleman or service provider in the supply chain. There is no motivation to pay a premium, they want a deal.

(h) Mr. Parker provided the links to the Agricultural Marketing Services (AMS) for price and grade standard reports. This is a USDA generated daily market report with input from the industry. The industry jargon in Florida is that the "Premium Lid" is the top quality for the shipper and a USDA #1 grade or better. Some packers do pack to a higher standard, which can impact utilization.

(i) Florida's shipping standards are ruled by a USDA Federal Marketing Order which sets the grade standards that can limit volume or supply and covers only mature green and grape tomatoes.

(j) Round Tomatoes from Mexico are inspected by USDA at the border and they must have a minimum grade standard of a USDA #2. Mexican sales in the US move through Nogales, and are governed by a trade agreement commonly called the Suspension Agreement, which provides for a fairly open market but also includes an anti-dumping rule that forbids sales under a pre-set price. The Mexican industry will tighten the grade when approaching price levels that would trigger the Suspension Agreement. Since the Order does not cover greenhouse tomatoes, a vast volume of the tomatoes shipped to the United States are not inspected.

(k) Professor Hayenga comments that this situation helps to explain why Florida prices may be higher through the imposition of grade standards imposed by a Marketing Order. The issue still remains that we are not comparing the same product, a mature green from Florida with a vine-ripened tomato from Nogales. (Roma and field tomatoes are vine-ripened in Mexico). The products, markets and shipping points are not the same.

(l) Domestic U.S. Production, Canada and Mexico all have their dominant markets. There is a geographic dividend from Florida's "natural" market, based on comparative shipping costs, which create a competitive advantage. This would also apply to other producing areas, for example Mexico shipping to the Western States, As a hypothetical case, a shipment of tomatoes from Nogales to New York City could be delivered at US$10.00 per carton with a US$3.00 freight rate or a US$7.00 f.o.b. The same price from Florida with a US$1.50 freight charge generates a US $8.50 fob. For some portions of the market, the freight differential provides for a premium in and of itself compared to Nogales. Florida shippers would be very much aware of this freight barrier for products in which they compete.

(m) USDA market reports, referred to by all witnesses, are at best a measurement of price estimates or trend indicators. The market reports provide a price quote but not the actual sale. It does not take into account contracts that call for adjusted price after sale or protected buyer agreements. In other words the buyer agrees to US$12 per carton with protection down to US$8.00. The market report would not consider these changes. The highs and lows are usually related to a quality condition or a long or short in the market.

(n) Frequently, fast food companies have very specific requirements with regard to size and quality. The conditions may be refined by the re-packer but it would take into account the agreed price structures. Sixty/seventy percent (60/70%) of tomatoes go through re-packers but four or five integrated players control most of the business.

(o) There is, in any event, not a premium on every box, as, for example, domestic sales, packing with Eurofresh brand (a lower price PTG brand), Canadian sales (for copyright reasons these must be re- branded), lower quality harvest, and when the Nogales price is at or near the required minimum.

(p) On the basis of this information, the role of the re-packer in the supply chain is to add value so they naturally negotiate on price to get a margin. They earn their way with good prices and good product. They specialize in food service accounts and frequently use their own label or sticker or in some cases the sticker or label of the food service account. The witnesses referred to the DiMare firm, an integrated operation, meaning that it controls its own re-packing operations. The premium mentioned in the testimony would be a value added from the re-pack station. Their own re-pack operations can negotiate for outside tomato volumes and they in fact have a procurement department.

The Dr. Rausser Case Study

160.
This study calculated lost revenue from loss of PTG brands as follows:

ALP Actual Revenues 2006/07 = US$17,994,355

"But For" Revenues 2006/07 = US$24,341,799

Difference: US$6,347,444

A + thirty-five percent (35%) Premium

ALP Actual Revenues 2007/08 = US$26,881,060

"But For" Revenues 2007/08 = US$38,598,911

Difference: US$11,717,851

A + forty-four percent (44%) Premium

Total Implied Premium: US$18,065,295

Approximately US$13 Million of Combined Premium from Greenhouse

161.
This Arbitral Tribunal has made these findings about the Rausser study:

a) His analysis is unable to compare similar products, markets and growing practices. The comparison problem is that Florida does not produce greenhouse tomatoes and that limits a meaningful comparison for 58% of the sales transactions. In the Rausser study 29,018 Kaliroy and Sunripe sales transactions 16,961 or 58% were greenhouse products. The model compares Nogales Sunripe (PTG) sales of greenhouse tomatoes for the years 2003-04-05 against Kaliroy sales in 2007-08, since PTG did not source or sell greenhouse tomato products in the latter two years. Greenhouse tomatoes are increasingly influenced by broad market trends and external forces. In the fall of 2004, Florida hurricanes destroyed the tomato crop in the States and Mexican GH producers benefited from extraordinary high prices a real distortion for this type of analysis problems. In more recent years, e.g., 2007-08, average grower prices for greenhouse tomatoes have been trending down, a result of over-production in Mexico, and in 2008 there was increasing pressure from food safety issues including an outbreak of salmonella. These events make comparisons questionable.

b) There are also problems comparing sales of Florida vs Nogales grape tomatoes: Here we have data for only one isolated year, 2007/08, with Kaliroy providing forty (40) transactions or three percent (3%) of the total. This is too small a sample to reach a judgment on a price premium. ALP was a reluctant producer of this variety and expressed in testimony concerns with the quality of the grape tomato in their production zone. It looks more like test volumes than a full commercial production. A premium would be available for this consumer preferred tomato when compared to other varieties of the same product.

c) His analysis of transactions also does not allow for channel assessments. Since the retail sector is considered to be the high value portion of the market, we are not able to evaluate volume distribution by trade type over the five years of data and the substantial growth of the GH product offering by Kaliroy/ALP. Trade channels would help us to understand the sales focus and price structures.

d) The implied premium of thirty-fifty percent (30-50%) in the Hausser case study is inconsistent with all the other facts considered on this market. References continually address the issue and importance of quality as the key factor in obtaining a price premium. This is observed in witness statements, in reality check interviews and other references. High quality and service factors come at a cost and this analysis is not part of the damage assessment. On the other hand, Professor Hayenga tries to analyze price premiums using the USDA Market Report Data and concludes there is not a noticeable premium. Finally, freight costs indeed play a role in delineating markets by variety and by allowing for a freight dividend, which would translate to a price premium.

e) Problems comparing sales of Florida vs Nogales Roma and round tomatoes: Here again we are comparing different commodities, shipping points and potential quality standards. See the previously described, the existence of a Florida freight dividend on the f.o.b. when compared to Nogales, specifically the different customer base; and potential for different quality standards.

162.
Conclusions about Rausser Study:

a) The revenue increases under Dr. Rausser's "But For" scenarios are staggering and unrealistic when related to all the information on brand premiums.

b) The increase in 2007-08 revenues could have been generated by the expanding production of greenhouse tomatoes and the need to move that volume into export channels, but this was not confirmed.

c) Product quality was not factored into the analysis, yet this attribute is mentioned and dominates much of the testimony on this subject. Along with sizing, quality has the greatest influence on pricing. It is possible that PTG's Sunripe brand and company are able to achieve a price premium from time to time for their total offering and market conditions despite the denial by Mr. Heller, but the decision or number for that premium would have to be arbitrary because of the trade-offs such as costs. This refers to the potential added expenses for cultural practices and grading which are undocumented in this hearing.

d) The Kaliroy claims are linked to the ALF findings which is the main source of revenue. The revenue projections that show a fifty-three percent (53%) increase under the "But For" scenario is unrealistic when linked to the Sunripe brand premium.

e) The inability to work with comparable data as pertains to tomato varieties, shipping points, quality standards and growing practices leads one to conclude that the calculated premiums are unrealistic and do not reflect the market realities.

f) Therefore, this econometric analysis is not persuasive in terms of its findings and damage assessments, specifically because:

‣ The analysis is unable to compare similar products, markets and growing practices.

‣ The analysis of transactions does not allow for channel assessments. Since the retail sector is considered to be the high value portion of the market, we are not able to evaluate volume distribution by trade type over the five years of data and the substantial growth of the GH product offering by Kaliroy/ALP. Trade channels would help us to understand the sales focus and price structures.

‣ References continually address the issue and importance of quality as the key factor in obtaining a price premium. This is observed in witness statements, in reality check interviews and other references. High quality and service factors come at a cost and this analysis is not part of the damage assessment.

‣ Professor Hayenga tries to analyze price premiums using the USDA market report data and concludes there is not a noticeable premium.

‣ Freight indeed plays a factor in delineating markets by variety and by allowing for a freight dividend, which would translate to a price premium.

‣ The implied premium of 30-50% in the Rausser case study is inconsistent with all the other facts considered on this market.

‣ The comparison problem is that Florida does not produce greenhouse tomatoes and that limits a meaningful comparison for 58% of the sales transactions. In the Rausser study 29,018 Kaliroy and Sunripe sales transactions were 16,961 or 58% greenhouse products.

‣ There is just no way to compare these transactions in a fair and realistic way. The model compares Nogales Sunripe (PTG) sales of greenhouse tomatoes for the years 2003-04-05 against Kaliroy sales in 2007-08, since PTG did not source or sell greenhouse tomato products in the latter two years.

‣ Greenhouse tomatoes are increasingly influenced by broad market trends and external forces. In the fall of 2004, Florida hurricanes destroyed the tomato crop in the States and Mexican GH producers benefited from extraordinary high prices a real distortion for this type of analysis.

‣ In more recent years, e.g., 2007-08, average grower prices for greenhouse tomatoes have been trending down, a result of over-production in Mexico, and in 2008 there was increasing pressure from food safety issues including an outbreak of salmonella. These events make comparisons questionable.

‣ Problems comparing sales of Florida vs Nogales grape tomatoes: Here we have data for only one isolated year 2007/08 with Kaliroy providing 40 transactions or 3% of the total. This is too small a sample to reach a judgment on a price premium.

‣ ALP was a reluctant producer of grape tomatoes and expressed in testimony concerns with the quality of the grape tomato in their production zone. It looks more like test volumes than a full commercial production.

‣ A premium would be available for this consumer preferred tomato when compared to other varieties of the same product.

‣ Problems comparing sales of Florida vs Nogales Roma and round tomatoes:

- Here again we are comparing different commodities, shipping points and potential quality standards.

‣ See the previously described the existence of a Florida freight dividend on the f.o.b. when compared to Nogales, specifically a different customer base and the potential for different quality standards.

Conclusions on Damages

163.
There is, surprisingly, no direct evidence of a premium on any sales from use of any PTG brand. The parties were driven to analysis of industry data, and trade experience. Most of the evidence indicates that the best premium most of the time was about US$1 per box, and we accept this. There is, however, not a premium on every box. It was also not possible from the information presented to determine when a premium was paid for an enhanced quality of service. Although the evidence in these areas is not precise, we do conclude that there was no way the Respondents earned an average of $1 premium on every box, and so we must take a substantial adjustment, and unanimously decided that a fifty percent (50%) reduction is fair.
164.
We see that gross export sales in 2005-6 were 3,323,076 cartons, in 2006-7, 2,951,528 cartons, and, in 2007-8, 3,144,117 cartons. The 2007 premium earnings would be US$2,951,528 less fifty percent (50%) for necessary discount as explained in the previous paragraph for a net of US $1,475,764. The Respondents also had to share fifty (50%) of profits with PTG, so its Award for 2007 would be ½ x US$1,475,764 or US $737,882 plus interest from the end of the crop year, May 1, 2007. Similarly, the premium earnings for 2007-8 would be US$3,144,117 less fifty percent (50%) for the necessary discount, for a net of US$1,572,058.50. Again, Kaliroy had to share fifty percent (50%) of profits with PTG, so its award for 2007-8 would be ½ x US$1,572,058.50 or US$786,029 plus interest from the end of the crop year, May 1, 2008.

I. COSTS and INTEREST

165.
The arbitration clause in the JVA, which is quoted in paragraph 2 of this Award, provides that arbitration interest on any award shall run "... from the day of breach or other violation of this contract". As to interest rate, the Tribunal chooses to apply the lex arbitri, i.e., Arizona law, which provides for interest rate of ten percent (10%) (as set forth at Arizona Revised Statute 44-1201) with any rights to compound as provided in that statute. The Tribunal also chooses to apply that rate to pre-judgment interest awards.
166.
While the arbitration clause as stated provides for interest from the date of any breach, the question arises in this case when that breach occurred. First we observe that the breach of contract regarding payment of profits dates from the day when, according to the contract those profits were to be paid. The Arbitral Tribunal concludes that, Article V(A)(1) applies to the ALP obligations, and, by necessary inference, also to the Kaliroy obligations. It provides that the profit shares are payable "... on or within thirty-five (35) calendar days after the financial statements of Kaliroy have been audited...". All the claims of PTG are profit shares, or adjustments to them. As it happened, in 2006, at the request of PTG, Deloitte Mexico did the audit and there was a delay of about five (5) months, none of which has been shown to be the fault of ALP. The audit was done on November 8, 2006 and thus the amounts in issue were due December 13, 2006, and interest will run from that date at 10% until payment for all Awards in favour of PTG.
167.
Interest on the awards on the Counterclaim shall run at the rate of 10% plus any compounding permitted by the law from May 1, 2007 and May 1, 2008, as explained in detail in paragraph 164, all running until day of payment.
168.
All determinations relating to costs and the allocation thereof and relating to compound interest award are reserved to a further Award.

J. SUMMARY OF AWARDS

169.
Based on the foregoing, the Arbitral Tribunal issues the following Awards:

(a) ALP shall pay PTG its share in profits for 2005-06 season in the amount of US$3,072,122, and shall pay PTG interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.

(b) Kaliroy shall pay, for PTG share in profits for 2005-06 Season, US$1,004,797 in profits, plus US$75,000 for the return of its capital investment, for a total of US$1,079,797; and Kaliroy shall pay PTG interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.

(c) ALP shall pay an additional US$173,690 tax payment that was withheld by it respecting the 2003-04 Season; and interest thereon at ten percent (10%) per annum beginning May 1, 2005, until the day of payment.

(d) ALP shall pay an additional US$502,431 tax payment that was withheld by it respecting the 2005-6 Season, and interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.

(e) Kaliroy shall pay US$75,000 in respect of accounting errors for 2005-6 Season and interest thereon at ten percent (10%) per annum beginning December 13, 2006, until the day of payment.

(f) PTG shall pay to Kaliroy damages in the amount of US$727,822 for the premium loss during crop year 2006-7 plus interest at ten percent (10%) per annum beginning May 1, 2007 until day of payment.

(g) PTG shall pay to Kaliroy damages in the amount of US$786,029 for premium loss during the crop year 2007-8 plus interest in US$ ten percent (10%) per annum beginning May 1, 2008 until day of payment.

(h) All claims, except those as to costs, not otherwise addressed herein are dismissed.

(i) All claims relating to costs and compound interest are reserved to a further Award.

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