## Facts

- A French wine producer entered a 1983 sole and exclusive agency/distribution agreement with a U.S. company for distribution and sale of certain wines in the contract territory.
- The U.S. company agreed to use “best efforts” to promote sales of the wines; invoices were payable 90 days from the ocean bill of lading.
- The U.S. company purchased wine from the French producer both under the producer’s brands and under the distributor’s private label (“Brand X”); FF 840,315 for Brand X shipments (and other invoice balances) remained unpaid.
- The French producer complained that the distributor sold few or no bottles under the producer’s trade name (22,794 in 1983; none in 1984) while concentrating on Brand X.
- In February 1985 the producer invoked a contractual termination provision and refused further sales, effectively terminating the relationship.
- The producer commenced U.S. federal court litigation over unpaid invoices, obtained a default judgment, and the judgment was later vacated with the action stayed pending arbitration.
- The dispute proceeded in ICC arbitration seated in Geneva, Switzerland before a sole arbitrator.
- The producer claimed payment of unpaid invoice balances; the distributor counterclaimed for damages from improper termination, recovery of legal fees incurred in the U.S. court proceedings, and USD 100,000 in exemplary (punitive) damages.

## Issues

1. Whether the distributor breached the exclusive agency/distribution agreement (including the “best efforts” obligation) so as to justify the producer’s termination and refusal to supply.
2. Whether the producer’s termination was improper and, if so, the proper measure of compensatory damages.
3. Whether exemplary (punitive) damages could be awarded given the New York governing-law clause and the arbitration seat in Switzerland.
4. Whether legal fees incurred in related court proceedings were recoverable as damages.
5. How to net claims and counterclaims through set-off and determine the currency for the award.

## Decision

- The tribunal granted the producer’s claim for unpaid invoice balances, including the unpaid amounts for Brand X and other deliveries.
- The tribunal granted the distributor’s counterclaim for damages caused by the producer’s improper termination of the agreement.
- The tribunal awarded the distributor compensation for legal fees incurred in connection with the related U.S. court proceedings.
- The tribunal denied the distributor’s request for exemplary (punitive) damages.
- The tribunal applied set-off to arrive at a net monetary result and addressed the currency for the dispositive payment obligation.

## Legal Principles

- A supplier’s termination of an exclusive distribution/agency agreement requires contractual justification; dissatisfaction with the distributor’s sales mix or private-label emphasis does not, by itself, establish a right to terminate absent a qualifying breach.
- A choice-of-law clause selecting New York law governs substantive merits (liability and compensatory damages) in the arbitration, subject to mandatory limits arising from the law and public policy of the arbitral seat.
- Punitive or exemplary damages may be refused in a Switzerland-seated arbitration as incompatible with Swiss international public policy, even if arguably available under the chosen substantive law.
- Legal expenses incurred in parallel court proceedings may be recoverable as damages where they were caused by the opposing party’s conduct inconsistent with the arbitration agreement and are shown to be reasonable and connected to the breach.
- Where both sides obtain relief, an arbitral tribunal may net monetary obligations through set-off and state a single payable balance in an identified currency.

## Conclusion

The tribunal enforced the producer’s right to recover unpaid invoice amounts while also holding the producer liable for wrongful termination and related fee losses, then netted the parties’ recoveries; it refused exemplary damages as inconsistent with Swiss public policy at the seat of arbitration.


Final Award in ICC Case No. 5946, XVI Y.B. Comm. Arb. 97 (1991)