Rio de Janeiro, Brazil. Suggar Loaf and Botafogo beach viewed from Corcovado at sunset. Rio de Janeiro is the 2016 summer olympic games hosting city.

On June 21, 2017, the Court of Appeals of São Paulo confirmed the validity of an arbitration clause set forth in an international sales representation agreement.

The dispute began when an American company decided to terminate a sales representation agreement with a Brazilian representative. The agreement was in force for 20 years.  The Brazilian representative used to intermediate sales between the American company and Brazilian customers.  The agreement, however, provided that any party could terminate the agreement without cause and without liability.

The sales representative then filed a lawsuit in Brazil seeking approximately US$ 2 million in compensation based on a Brazilian Statute (Law n. 4886/65), which provides that if the manufacturer terminates the agreement without cause, it must pay damages of 1/12 over all the commissions received by the representative during the entire agreement.  As the agreement provided for arbitration in New York and the application of New Jersey law, the sales representative requested the Brazilian courts to annul such provision and to allow the lawsuit to proceed in Brazil.  It argued that the arbitration clause and the waiver of liability would be invalid as it would violate Brazilian public policy.

After the lawsuit was filed, the American company commenced arbitration in New York to declare that the arbitration clause was binding, and that pursuant to the agreement and to New Jersey law, no compensation was due to the sales representative.

In Brazil, the lawsuit was dismissed by both the Trial Court and the Court of Appeals. They understood that the “arbitration clause is binding upon the parties, and cannot be disregarded or replaced by the Judiciary.”

The arbitration was also decided in favor of the American company. The single arbitrator concluded not only that he was competent to hear the matter, but also that the sales representative was not entitled to any damages. He considered that the statutory damages provided in the Brazilian Statute (1/12 over all commissions) could be waived and was not a matter of public policy.

The case is also relevant because Law. 4886/65 includes a choice of forum rule setting forth that the courts of the place where the legal representative is domiciled are competent to hear disputes arising from such contracts. Based on this statute, there are precedents considering that Brazilian courts would be competent to hear disputes arising from such contracts regardless of the fact that the parties had referred disputes to arbitration.[1] More recent cases have reversed this trend, ruling that the statutory choice of court is not a matter of public policy and can be waived if the parties provide for arbitration.[2]

Hence, this is a very important precedent because it confirms that arbitration clauses can be considered valid even in sales representation agreements, which normally receive a lot of protection by Brazilian courts, as the sales representatives are considered weaker parties vis-à-vis the manufacturers.

The American company was represented by Ricardo Q. Duarte and Luis H. Borghi from the law firm Trench Rossi e Watanabe in cooperation with Baker McKenzie.

Appeal n. 1024873-53.2014.8.26.0100, available in Portuguese at the website of the São Paulo Court of Appeals.

[1] See: Lee, João Bosco. Da Aplicação da Arbitragem ao Contrato de Representação Comercial Internacional. In: Valença Filho, Clávio de Melo; Lee, João Bosco (orgs.). Estudos de Arbitragem. Curitiba: Juruá, 2009, p. 319 and following.

[2] See:  i) Superior Court of Justice, Third Chamber, special appeal nº 712.566 – RJ, judged on August 18, 2005, Espal Representações e Conta Própria Ltda. v. Wilhelm Fette GmbH. ii) Court of Appeals of Rio de Janeiro, Eight Chamber, appeal nº 31172/2003, judged on March 15, 2005, Superquip Serviços e Equipamentos Técnicos Ltda. v. Daniel Measurement and Control, Inc. iii) First Court of Second Instance of São Paulo (Primeiro Tribunal de Alçada Cível de São Paulo), Seventh Chamber, appeal (agravo de instrumento) nº 1.111.650-0 judged on September 24, 2002, Total Energie, S.N.C. v. Thorey Invest Negócios Ltda.

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