Latest Developments in Arbitration Country Focus: Brazil
Mauricio Gomm-Santos*
Introduction:
International Commercial Arbitration ("ICA") is on the rise throughout the world, as both firms and government more frequently choose arbitration over litigation in courts. Many Latin American countries have recently passed or revised legislation in order to encourage ICA. Countries, with a few exceptions, have come to believe that encouraging arbitration contributes to economic development by improving their attractiveness for foreign investment. If it is true that the implementation of a pro-arbitral approach in a given country comes from the passage of a modern legal regime consistent with international standards, it is also true that its consolidation is linked to the role of the State courts. Understanding a country's statutory regime and following the development of its case law have increasingly become important for everyone involved in international transactions. Arbitration is one of the tools all international practitioners look (or should look) closely at the drafting stage of a contract.
The history of arbitration in Brazil has changed in 1996, with the passage of the Brazilian Arbitration Act1 ("BAA"), the ratification of the Inter-American Convention on International Arbitration ("Panama Convention")2 , and, a few years later, the adhesion to the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention")3. During this period, several significant events have helped shape the development of arbitration in Brazil. This article purports to submit to analysis three specific aspects: (i) the Constitutional Amendment, which shifted the jurisdiction from the Brazilian Supreme Court ("STF") to Brazilian Superior Court of Justice ("STJ") regarding international judicial cooperation, and (ii) the case law, during the last two years, related to recognition and enforcement of foreign awards, and (iii) to situations where a state-owned entity is involved.
(i) The Constitutional Amendment
Under Constitutional Amendment n. 45/2004 – the so-called Judiciary Reform – which went into effect as of December 8, 2004, jurisdiction to decide upon an application for the recognition of foreign arbitral awards4 shifted from the STF to the STJ. It has been a substantial change. The STJ has a greater number of justices5, who are seen as more liberal than those from the Supreme Court. The Constitution now provides that the STJ has the power to hear and to decide as a matter of original jurisdiction the recognition (homologation) of foreign judgments.6 In case of domestic arbitration7, the STJ is entrusted by the Constitution to give the last word on the construction of federal statutes; such is the case of the BAA.
(ii) Recognition and Enforcement of Foreign Arbitral Award: Recent Developments
Despite some setbacks, the period from 2005 to 2007 represents a phase of expansion of international arbitration in Brazil. The STJ8 has been offering to the international community a clear message in favor of granting recognition and enforcement of foreign arbitral awards. A chart highlighting the evolution of the arbitral case law during this period is attached as Appendix A.
In May 2005, the STJ issued the first decision regarding a claim for homologation of foreign award since the amendment went into effect. In Ailglon S.A v. Textil Uniao S/A9, the petitioner, a Swiss Company, filed against a Brazilian Party a request for recognition of an English award rendered under the rules of the Liverpool Cotton Association Ltd. The Brazilian Party opposed the request based on the fact that the underlying contract had not been signed which, they argued, pursuant to article four, paragraph one10 of the BAA meant that there was an absence of agreement to arbitrate, and, as a consequence, a lack of arbitral jurisdiction.
The Court unanimously held that, although, in principle the point argued by the opposing party might apply in some cases11, the facts and circumstances of Aiglon clearly demonstrated that defendant was not only aware of the arbitral proceedings (without presenting a timely challenge), but also that it duly offered its defense therein. Therefore, the STJ ratified (homologated) the English award on the ground that the acceptance of the arbitration agreement was unequivocal due to the unmistakable behavior12 of the parties during the arbitral proceedings.
However, in Oleaginosa Moreno Hermanos Sociedad Anonima Comercial Industrial Financeira Inmobiliaria et al v. Moinho Paulista Ltda.13, the winning party sought to enforce an award rendered in London, U.K., under the rules of Grain and Feed Trade Association ("GAFTA"). the Brazilian party challenged the request for recognition based on the following grounds: (i) the contracts were null and void since the person who executed them had no authority to do so; (ii) the arbitral tribunal lacked jurisdiction to render an award; (iii) the Respondent’s presence in the arbitration was solely to oppose the arbitral jurisdiction, and therefore did not lead to a waiver nor to acceptance of the arbitration. The Court denied recognition on the ground that the records do not provide concrete elements to assure that there was indeed an agreement to arbitrate, nor was there any form of consent regarding an intention to arbitrate. The presence of the respondent in the arbitration cannot be labeled as a waiver because it timely objected the jurisdiction of the tribunal.
In Thales Geosolutions Inc v. Fonseca Almeida Representações e Comércio Ltda.14, the STJ granted recognition of a foreign award rendered in Houston, Texas. The U.S. entity, Racal NCS Inc (later Thales Geosolutions Inc) entered into a contract with the Brazilian to perform some technical works in the Amazon and Madeira Rivers, in Brazil. The arbitration clause provided for arbitration in Houston under Texas law in accordance with UNCITRAL Rules. Fonseca, the Brazilian party argued that Thales, the U.S. entity (winning claimant in the arbitration) had breached the contract by refusing to turn over essential technical data, which led to the losing of a State permit. As a result, Fonseca refused to perform its contractual duties. The arbitral tribunal awarded damages in favor of the U.S. Company, which sought recognition of the award before the STJ. The Brazilian party opposed arguing, inter alia, violation of article 1092 of Brazilian Civil Code then in force, which encompasses the principle of "exceptio non adimpleti contractus"; i.e. "a failure do perform one’s contractual obligation bars one from requiring performance from another"15. Accordingly, the award would violate Brazilian public policy. The Court held that article 1092 of Brazilian Civil Code does not fall within the scope of public policy and granted recognition of the foreign award. The Court also recognized that the merits of an arbitral award cannot be revisited during enforcement proceedings, and a distinction between domestic and international public policy has to be made in order to apply only the latter in the recognition procedure of a foreign arbitral award.
In Bouvery International S/A v. Irmãos Pereira – Comercial e Exportadora Ltda.16 The parties entered into a contract for sale of coffee, which provided for arbitration under the Rules of the Arbitral Chamber of Coffee and Pepper of the Havre (France). The arbitral tribunal awarded in favor of Bouvery, which sought recognition before the STJ. The arguments to oppose recognition were: (i) the French arbitral award had not been homologated by French courts; (ii) the Respondent had not been properly served in the arbitral proceedings, therefore it had not presented its case, and (iii) there was no prior undertaking to establish the arbitral process, which would require the drafting and execution of a submission agreement, "compromisso". Recognition was granted. The Court held that there were no doubts regarding the existence of the arbitration clause. The challenging party, although duly notified under the adopted arbitral rules, opted for not participating in the arbitration.
In the Union Européenne de Gymanstique – U.E.G. v. Multipole Distribuidora de Filmes Ltda.17, the Brazilian party challenged the request for recognition of a Swiss award issued under the rules of Court of Arbitration for Sport, arguing inter alia that it had not been properly served to answer the request for arbitration. The proper way of serving a party in the international arena would be trough letter of rogatory. Also, the Brazilian party argued that the contract violates article 51 of Brazilian Code of Consumer Defense, which labels as unconscionable contractual clauses that call for mandatory arbitration. The STJ held that the use of arbitration as a means of dispute resolution does not violate Brazilian public policy. The Court went on to say that there was no way to accept that the challenging party had been abusively compelled to arbitrate simply because it had agreed to solve future disputes through arbitration. The Brazilian Code of Consumer Defense had no application. Finally, the Court held that, according to article 3918 of the BAA, there is no need to serve the Brazilian party to answer a request for arbitration, by way of letter of rogatory. The records show that the challenging party was properly served by mail; in other words, there was evidence that the party had received actual notice of the arbitral proceedings.
However, in Subway Partners CV v HTP High Technology Foods Corporation S/A19, the winning party in the arbitration, sought confirmation of the award before U.S. courts prior to seeking recognition of the award before Brazilian courts. In Subway the issue was slightly different from that in U.E.G. The issue here was whether the Brazilian party had been properly served in the U.S. judicial (confirmation) proceedings. The STJ, by majority of votes, denied recognition on the ground that being a judicial process20, the Brazilian party should have been served by letter of rogatory to respond the proceedings filed before U.S. courts.
In Tremond Alloys and Metals Corp v. Metaltubos Industria e Comercio de Metais21, the Brazilian party basically opposed to recognition by arguing that an AAA award, rendered in U.S.A. violated Brazilian public policy because it stated no reasons. In the alternate, the award could not be enforced because the challenging party had duly performed its contractual obligations. The STJ rejected both arguments. The Court rejected any analysis of whether the party had performed its duties because this avenue would lead to a scrutiny of the merits of the case. On the allegation of lack of reasons, the Court held that the award met all formal requirements, and the fact that reasons were rather concise would not lead to violation of public policy. However, In Kanematsu USA Inc v. ATS Advanced Telecommunications Systems do Brazil Ltda.22, the issue regarding unreasoned award was more straightforward. The party is seeking recognition of an unreasoned award rendered in the U.S.A under the American Arbitration Association Commercial Rules23. The application was challenged on various grounds, including violation of public policy, given the requirement laid down in article 2624 of the BAA. The question is whether the STJ is ready to adopt the view that there is a transnational public policy specific to international commerce, according to which an unreasoned award, rendered in accordance with the will of the parties and in line with the adopted arbitral institutional rules, is acceptable. The case is still pending.
(iii) Arbitration where a State-Owned Company is a Party
Similar to other Latin American countries, arbitration involving a State-owned company has been subject of interesting debate in Brazil.
In Companhia Paranaense de Energia Elétrica ("Copel") v. UEGA Araucaria25, the contract contained an arbitration clause under ICC Rules with the place of arbitration in Paris, using Brazilian substantive law. Months after being served on the ICC arbitration, Copel filed an anti-suit injunction before the 2nd Lower Treasury Court of the State of Parana, seeking to enjoin UEGA from pursuing the arbitration in Paris. It also sought a declaration of nullity of the arbitral clause. Copel argued that the Arbitral Tribunal lacked jurisdiction to hear the case because it would not be subject to arbitration basically for two reasons: (1) Copel status as a corporation controlled by the State of Paraná and (2) the nature and scope of the contract itself, which would embrace matters of public interest. The first instance judge sided with Copel granting a preliminary injunction and ordering UEGA to refrain from taking any act on the arbitration, subject to a daily penalty of approximately US$ 400,000.00. At this time, the ICC tribunal had already been constituted and had issued a partial award on jurisdiction saying that the arbitration should proceed. After several procedural rulings, the Court of Appeals granted UEGA a stay order against the Lower Court decision.
Copel challenged the stay order. The Parana State Court of Appeals held that there is no prima facie reason under Brazilian Law preventing state controlled entities from agreeing to settle their business disputes through arbitration. The court also held that to prevent UEGA from proceeding with the arbitration would violate its constitutional rights to access appropriate jurisdiction, for this was the dispute resolution method agreed upon by the parties. Eventually, the parties settled. In Copel v. Energetica Rio Pedrinho26, a Popular Action27 was filed before the 2nd Lower Treasury Court of the state of Paraná seeking an injunction to stay arbitral proceedings which were in progress before the Brazilian Getulio Vargas Foundation Conciliation and Arbitration Chamber. The district court granted the order. The arbitral tribunal had already denied Copel’s request to this end. The Parana State Court of Appeals reversed the lower court decision. It held that "… [t]here is no obstacle for a government-controlled legal entity, governed by private law, to enter into agreements or to resolve disputes via arbitration, since the matter referred to arbitration is merely of an economic nature and does not involve any public interest".
In another State-of-Parana case involving Companhia Paranaense de Gas ("Compagas") v. Carioca Passarelli Consortium (the "Consortium")28 , the Parana State Court of Appeals had again the opportunity to rule on issue of arbitrability where a state-owned company is involved. Compagas is entitled to explore piped gas services and contracted the Consortium, via a bidding process, to provide services related to its distribution network. A dispute arose between the parties regarding economic and financial adjustments to the contract and the parties started arbitration to settle the dispute. The award was rendered in favor of the Consortium and Compagas brought an action before the State court seeking to vacate the award on several grounds.
On the issue of arbitrability, Compagas' argument that the award was null and void because the matter involved public interests was rejected. The court held that "Compagas is a business corporation governed by private law of which the government is a shareholder and … [i]t is therefore obvious that contracts entered by and between the appellant and appellee are governed by private law and that there is absolutely nothing against conflicts arising there from being decided by arbitration as provided by Brazilian law." In another part, the court affirmed that "t]he use of arbitration is even more adequate when it concerns the acts of governmental companies involved in the exploration of economic activities which are governed by the same legal system applicable to private companies, according to article 173, paragraph one of the Brazilian Constitution"29.
In the Companhia Estadual de Energia Elétrica ("CEEE")30 vs. AES , the arguments were similar to those raised at the above-mentioned cases. In addition, it was argued that the wording in the arbitration clause did not have a binding effect since it stated that the disputes may be solved by arbitration. The district court judge of the state of Rio Grande do Sul granted the relief sought by CEEE to stay arbitral proceedings that had already started before the ICC. The Court of Appeals of Rio Grande do Sul State affirmed the lower court ruling.
The STJ reversed the Rio Grande do Sul Court of Appeals' decision. It held that mixed-capital companies are governed by the same rules applicable to private companies, being thus fully capable to have their disputes resolved by valid and binding arbitration agreements. The opinion went on to say that the CEEE's refusal to submit to arbitration violated the principle of good-faith, and that the arbitration clause was binding for both parties and prevented state-courts from interfering in the arbitral proceedings, at least at this stage of the dispute. Being a STJ decision, this is considered to be the leading case regarding arbitrability disputes involving public administration after the enactment of the BAA.
Finally, in Terminal Multimodal de Coroa Grande (TMC) v. Federal Government, the STJ granted the injunction requested by TMC and upheld the validity and enforceability of the arbitration clause in the lease agreement between the private party and the State-controlled Corporation. In its decision, the STJ affirmed that State-controlled corporations are not subject to any restrictions with regard to entering into agreements containing arbitration clauses. The STJ went even further in the analysis and drew a distinction between acts performed by governmental entities in furtherance of public interest and economic activities carried out by the State, so as to acknowledge that, with respect to the latter, arbitration could be the most adequate method of dispute resolution due its celerity.31
CONCLUSION
The STJ, in its constitutional mission to give the last word on the construction of federal statutes, and the original jurisdiction to hear requests for recognition of foreign awards, has been showing a positive approach towards arbitration. There are still some setbacks along the way, but the pillars for setting up a friendly arbitration environment in the country are in place.
APPENDIX A32
Ratification of Foreign Arbitral Awards in Brazil
|
Superior Tribunal of Justice |
|
Proceeding number |
Parties |
Decision date |
Reasons for challenge |
Summary of the decision |
|
SEC 856 |
L’Aiglon S/A X Têxtil União S/A |
18 May 2005 |
Challenged on the basis that: (i) the arbitration clause is null because there was no express agreement of the Respondent, (ii) the Respondent had been mislead into corresponding with the arbitral tribunal, (iii) the arbitrators failed to analyze the factual matter of the claim, and (iv) the arbitral award is unenforceable because the Claimant had already obtained profit from the operation. |
Ratification granted. The STJ held that the Respondent tacitly accepted the arbitration clause because it participated actively in the arbitral proceeding, and also at no time challenged the existence of the arbitration clause. The STJ decided that the Respondent could have challenged the institution of the arbitration proceeding at the suitable moment and that the other allegations refer to the merit, and as such cannot be analyzed in a ratification proceeding. |
|
SEC 802 |
Thales Geosolutions Inc. X Fonseca Almeida Representações e Comércio Ltda |
17 August 2005 |
Challenged under the allegation that the arbitral award violated public policy and national sovereignty. |
Ratification granted. The STJ held that the questions raised by the Respondent (regarding the objection that the contract had not been performed) do not involve public policy and are not connected with the concept of national sovereignty. Besides this, it pointed out that an arbitral award has constitutive force between the parties, as long as it is issued formally and substantively according to the principles of the Brazilian legal order. |
|
SEC 966 |
Ecom Agroindustrial Corp Ltda. X Companhia Têxtil Pé de Serra |
22 September 2005 |
Challenged on the basis that: (i) the Respondent filed an ordinary lawsuit seeking to terminate the agreement entered into with the Claimant in the jurisdiction of Araripina, Pernanbuco, which had been judged in its favor, and the Claimant had filed an appeal of that decision, still pending judgment, and (ii) although there is a contractual clause electing the Liverpool Cotton Association Ltd.as the arbitral venue, the contract had been previously registered on the São Paulo Mercantile and Futures Exchange and the transaction had been carried out based on the regulations of that institution. |
Proceeding suspended. The STJ held that, despite the presumption that Brazilian jurisdiction is not appropriate to resolve the dispute (based on the existence of an arbitration clause), in service to national sovereignty and prudence, the case should be stayed until the Pernambuco State Court of Appeal renders a decision. |
|
SEC 967 |
Plexus Cotton Limited X Santana Têxtil S/A |
15 February 2006 |
Challenged alleging that: (i) it was impossible to renew the petition for ratification due to formal defect, since the Federal Supreme Court33, in SEC n. 6753, had refused to ratify it, in a res judicata decision, (ii) the award was issued by a tribunal without authority, due to the inexistence of a sale contract executed by both parties, (iii) there was no clause electing the Liverpool Cotton Association Ltd. as the venue for resolving disputes under the contract or in any other valid instrument, (iv) the grounds for the referred refusal to ratify was the absence of proof as to the manifestation of will to waive jurisdiction of the judicial courts in favor of private resolution, under penalty of offense to public policy, (v) the Respondent believed that any disputes would be resolved by an arbitral tribunal established under the auspices of the São Paulo Mercantile and Futures Exchange, and (vi) English law also would require joint agreement of the parties to elect the arbitral forum. |
Ratification denied. The STJ held that it was impossible to reconsider the merit of the ratification petition, since the Federal Supreme Court had already done this in a previous decision, on which occasion it was found there was neither an arbitration clause nor even a contract signed by the parties. |
|
SEC 887 |
Bouvery International S/A X Irmãos Pereira – Comercial e Exportadora Ltda. |
6 March 2006 |
Challenged on the basis that: (i) the French arbitral award had not been submitted to a judicial court, (ii) the Respondent had not taken part in the arbitral proceeding, so had not exercised its right to defense, and (iii) there was no prior undertaking to establish the arbitral court, so the alternative set forth in Art. 6 of the Brazilian Law of Arbitration should have been used. |
Ratification granted. The STJ held that there were no doubts about the pre existence of the arbitration clause. Even though the Respondent did not exercise its right to ample defense and rebuttal in the arbitral proceeding, this was not because that proceeding was irregular, but rather because the Respondent failed to participate. Moreover, the Respondent did not prove it had not been notified of the commencement of the arbitration and other acts of the proceeding. |
|
SEC 874 |
Union Europeénne de Gymnastique – UEG X Multipole Distribuidora de Filmes Ltda. |
19 April 2006 |
Challenged on the basis that: (i) the Respondent had not been served notice to answer the arbitral claim, (ii) the absence of notification of the Respondent by letter rogatory violates public policy, (iii) there was no translation of the Arbitration Code on matters of sports, (iv) the contract was counter to Art. 51, VII of the Consumer Defense Code, which covers nullity of contractual clauses that impose compulsory arbitration, and (v) the theory of unforeseeability was not observed. |
Ratification granted. The STJ pointed out that the use of arbitration as a means of dispute resolution does not violate Brazilian public policy. The court also stated there was no way to affirm the Respondent had been compelled to choose arbitration, because it did not prove that allegation. Finally, the court held that according to Art. 39 of the Brazilian Law of Arbitration, it is not obligatory to notify a party resident in Brazil by letter rogatory, and it had been demonstrated that the Respondent had received summons and other notices of the arbitral proceeding by mail. |
|
SEC 866 |
Oleaginosa Moreno Hermanos Sociedad Anónima Comercial Industrial Financeira Inmobiliaria Y Agropecuára X Moinho Paulista Ltda. |
17 May 2006 |
Challenged alleging that: (i) the contracts at issue in the arbitration did not exist, since the person executing them had no powers to do so, (ii) the arbitral award was rendered by a tribunal without authority, due to the absence of a written arbitration clause, (iii) the presence of the Respondent in the arbitral proceeding does not induce acknowledgment of competence, since this point was raised in preliminary arguments in the arbitral proceeding. |
Ratification denied. Initially, the STJ stated it would not analyze the question of the inexistence of the contracts, because this was a question of merit, which cannot be considered in a petition for ratification. On the other questions, the STJ pointed out that because the contracts had been reached orally between the parties and there was no other document bearing the signature of the Respondent or any form of consent regarding the agreement, so there was no way to establish there had been agreement with the arbitration clause, so the arbitral tribunal was incompetent to hear the matter. It also held that the foreign award violated national public policy. Finally, the STJ held that the Respondent submitted to the arbitral tribunal an argument on the absence of an arbitration clause, so that there is no way to say that it accepted such clause, even tacitly. |
|
SEC 760 |
Tremond Alloys and Metals Corp X Metaltubos Indústria e Comércio de Metais Ltda. |
19 June 2006 |
Challenged on the basis that: (i) the arbitral award was null because of the absence of a report and grounds, and (ii) the Respondent fulfilled the contract between the parties. |
Ratification granted. The STJ held that the Respondent’s allegations regarding fulfilling the contract is a question of merit, which cannot be considered in a ratification proceeding. Regarding the nullity of the arbitral award, the STJ ruled that although concise, it did have a report and was duly grounded, so it is not null. Finally, the STJ pointed out that all the essential conditions for ratification had been satisfied, namely the existence of an express arbitration clause in the contract executed, authenticated documents accompanied by sworn translation, legal verification of the absentia of the Respondent, and absence of any offense to national sovereignty, public policy and good customs. |
|
SEC 968 |
Gottwald Port Technology GMBH X Rodrimar S/A Transportes Equipamentos Industriais e Armazéns Gerais |
30 June 2006 |
Challenged alleging that: (i) the Claimant had no legitimacy to petition for ratification of the arbitral award, since it was not a party to the agreement submitted to the arbitral tribunal and had not participated in the arbitral proceeding, (ii) the credit assignment agreement was irregular, since the Respondent had not been notified of its execution, and (iii) the arbitral award was rendered in disaccord with the arbitration clause, because the arbitrator did not utilize the legislation elected by the parties to resolve the dispute. |
The case was dismissed without judgment of the merit because of acceptance by the STJ of the preliminary argument that the Claimant had no standing to petition. The STJ held that for it to analyze the merit of the petition, it would be necessary to verify the Claimant’s legitimacy, and as a consequence, of the credit assignment agreement, which is not permitted because the arbitral award was silent on that agreement. Besides this, the STJ ruled that the questions regarding possible defects in the referred agreement also could not be considered, since to do so it would have to analyze the agreement, which is not permitted in a ratification proceeding. |
|
SEC 833 |
Subway Partners C V X HTP High Technology Foods Corporation S/A |
16 August 2006 |
The petition was challenged by a special conservator because of the absence of the Respondent under the allegations that: (i) neither a copy of the arbitral award, the original arbitration commitment nor certified copies of these documents accompanied by a sworn translation had been submitted, (ii) the conciliation instrument submitted was apocryphal and did not contain the elements to ascertain its authenticity, (iii) there was no proof of effective summons of the Respondent to participate in the arbitration, (iv) the Claimant had submitted a decision from the American court, but without clarifying whether it intended to have that decision or the arbitral award ratified, and (v) there was no unequivocal demonstration of that the Respondent or its legal representatives had been regularly summoned to answer the suit to ratify the award in the American state court. |
Ratification denied, by majority vote. The STJ held there was no valid summons of the Brazilian party in the suit to ratify the arbitral award. The majority opinion stressed that the confirmation of the arbitral award by the Connecticut was unnecessary, but the Brazilian party still should have been summoned by letter rogatory in such judicial proceeding to ratify the arbitral award. |
|
SEC 507 |
Grain Partners SPA X Oito Exportação e Importação de Cereais e Defensivos Agrícolas Ltda. e Cooperativa dos Produtores e Trabalhadores Urbanos e Rurais de Sorriso Ltda. – Coopergrão |
18 October 2006 |
Challenged alleging that: (i) the Claimant needed to post a guarantee bond to petition for ratification, (ii) the arbitration clause was ineffective because Art. 7 of the Law of Arbitration is unconstitutional and Art. 4 of that law had been ignored, since in adhesion contracts such a clause had to be expressly accepted by the adhering party or had to appear in boldface and be initialed by the parties, (iii) the parties had expressed their intention of using Brazilian jurisdiction, which was demonstrated by the lawsuits filed by both parties in the Paraná state courts, (iv) there had been violation of the right to ample defense and rebuttal, since costly, which had prevented the Respondents from naming an arbitrator and filing an appeal of the award, (v) there was offense to public policy since in Brazil there were rules on the monopoly of the judicial courts – thus prohibiting private resolution. |
Ratification granted. Initially, the STJ noted that the Brazilian Arbitration Law is constitutional and of immediate application. It also ruled that there was no requirement to post a guarantee bond to file a petition to ratify an arbitral award, according to the Civil Procedure Code and its own Resolution 9. The STJ held that to verify whether or not the agreement was an adhesion contract, it would be necessary to consider the merit of the question, which is not permitted in a ratification proceeding, and in any event the documents submitted by the Claimant prove it was not an adhesion contract. Moreover, the STJ ruled that there was no proof that the Claimant had filed a suit in the Paraná court, and consequently waived the arbitration. Besides this, the STJ decided there was no violation of the right to ample defense and rebuttal, since the Respondents freely adhered to the contracts that contained an express arbitration clause and were fully aware of the commencement of the arbitral proceeding, having participated in it. Finally, the STJ noted that arbitration does not violate public policy, since it was legally instituted in Brazil and held constitutional by the Federal Supreme Court. |
|
SEC 611 |
First Brands do Brasil Ltda, STP do Brasil Ltda X STP – Petropolus Produtos Automotivos S/A PPA, Petropolus Sul Comércio Exterior S/A PSC |
23 November 2006 |
Challenged under the allegation that: (i) the arbitral award was based on false premises, (ii) the arbitral undertaking was invalid because it was the fruit of defective consent of the Respondents, based on an error regarding the person and subject matter of the legal act, pursuant to Arts. 138 and 139 of the Civil Code, (iii) the subjective and objective limits of the arbitration undertaking were overstepped, because the arbitral tribunal had excluded from the proceeding the only company that had really been involved in the joint venture contract, (iv) the arbitration had not resolved the real problem between the parties, obliging the Respondents to file suit in the Brazilian judicial courts, (v) a suit had been filed to set aside the arbitral award and arbitration undertaking in the 35th Central Court of São Paulo, (vi) there was offense to national sovereignty, since the requirements of Art. 11, IV, of Law 9307/96 had not been followed, (vii) that the “principles of due legal process”, equality before the law, right to rebuttal and ample defense had been violated. |
Ratification granted. The STJ rebutted the Respondents’ arguments point by point, holding that the provisions of Art. 38 of Law 9307/96 contain a broader scope of legal situations that can be presented in the contestation in relation to those set forth in Art. 221 of the Internal Rules of the Federal Supreme Court, but not to the point of permitting invasion of the sphere of the merit of the arbitral award. Besides this, the Court held that the existence of a suit to set aside a foreign arbitral award in progress in Brazilian courts is no impediment to ratification of that award, and there is no offense to national sovereignty, which would only exist if there was a Brazilian decision on the same questions resolved by the arbitral tribunal. |
|
SEC 349 |
Mitsubishi Electric Corporation X Evadin Indústrias Amazônia S/A |
21 March 2007 |
Challenged on the basis that: (i) the contracts were executed in Japan to be performed in Brazil, allowing the Brazilian company to exploit the Mitsubishi brand commercially in Brazil, not the world, so the contract should be considered a Brazilian one, (ii) when the contracts were entered into, Law 9307/96 had not yet been enacted, making the arbitration clause in the contracts unenforceable, (iii) the fact the Respondent had participated in the arbitral proceeding to defend itself, name an arbitrator and submit evidence does not bind it to the decision rendered by a tribunal not recognized in Brazil, (iv) there is a suit pending in a Brazilian court to resolve the questions ruled on by the arbitral award, (v) the suits filed, one for preventive relief and another ordinary suit, were dismissed under the mistaken interpretation of the existence of the arbitral tribunal, (vi) Law 9307/96 does not apply to contracts executed before it took effect, (vii) ratification of the arbitral award would injure national sovereignty and violate public policy, since it would imply violation of the principle against ex post facto application of the law, as a fundamental protection of perfected legal acts. |
Ratification granted. The STJ initially held that the contract was international, since it had been signed in Japan, and the parties had elected Japanese arbitration to resolve disputes. Moreover, the Court affirmed that the provisions of Law 9307/96 have immediate application in contracts executed previously if they contain an arbitration clause. The decision also noted that if a party participated in the arbitral proceeding and submitted a defense, it can no longer question its submission to the award and there is nothing prejudicial between the suits filed in the judicial courts and the petition for ratification, so they do not have the power to stay consideration of the ratification petition. |
|
SEC 839 |
Bouvery International S/A X Valex Exportadora de Café Ltda. |
16 May 2007 |
Challenged under the argument that there was no proof that the transaction that gave rise to the dispute had become concrete, and that the Coffee and Pepper Arbitral Chamber of Le Harvre, France is merely a group formed of brokers, not a recognized arbitral tribunal by French law. |
Ratification granted. The STJ held that the argument that the purchase and sale transaction never was implemented involves the merit and may not be considered in a ratification proceeding. The decision also held that Law 9307/96 continues in full force, to rule against the argument about the validity of the arbitral chamber. In closing, the decision held that none of the impediments set forth in Law 9307/96 were present and that the award did not injure sovereignty, public policy or good national customs. |
|
SEC 1210 |
International Cotton Trading Limited – ICT X Odil Pereira Campos Filho |
20 June 2007 |
Challenged alleging that: (i) there was no arbitration agreement signed by the parties, (ii) the arbitral award is null, since it runs counter to internal laws, public policy and good customs, and (iii) the Claimant had breached the agreement with the Respondent. |
Ratification granted. The STJ decided it was unequivocal that the parties had agreed to an arbitration agreement, which by itself empowers the arbitral tribunal to resolve the dispute. Besides this, the STJ held that there was no irregularity in the arbitral proceeding, since the Respondent was notified and of all its phases. In closing, regarding the allegations of nullity of the arbitral award and breach of contract by the Claimant, the STJ held that because these questions involve the merit, they cannot be discussed in a ratification proceeding. |
|
SEC 831 |
Spie Enertrans S/A X Inepar S/A Indústria e Construções |
3 October 2007 |
Challenged on the basis that: (i) there was a defect in the notification of the arbitral proceeding; (ii) the arbitration clause was ineffective because the Consortium Agreement was entered into between the parties in 1995, before the Brazilian Arbitration Law was enacted, so the provisions that require dual ratification of foreign awards must be respected (Arts. 584, IV, and 1097 of the Civil Procedure Code), (iii) that there was violation of national sovereignty and the principle of rebuttal, because: a) arbitration is a strictly personal right, and thus the arbitration clause was not transferable by mere assignment of the contract – there had to be express acceptance of the Respondent of that clause, b) the questions faced in the arbitral proceeding were considered according to Belgian law, which caused harm to the Respondent, c) in that proceeding it had been denied the right to present evidence requested, under the justification that the evidence submitted was already sufficient, and (iv) the dispute was objectively not open to arbitration, because the succession by the Respondent was not disposable. |
Ratification granted. The STJ reiterated its position that the Brazilian Arbitration Law is constitutional and may be applied retroactively to clauses entered into before it took effect. The STJ stressed that in merging with the company the Respondent had assumed all the rights and obligations, including the arbitration clause in the Consortium Agreement with the Claimant, and had breached that agreement. Therefore, the Court held that there is no way to speak of offense to national sovereignty and public policy, nor that the Brazilian Arbitration Law does not apply because the agreement was signed before its enactment. The STJ also decided that the previous system of the provisions cited of the Civil Procedure Code, requiring double ratification, did not apply. Finally, the Court held that there was no defect in the notification or violation of the principle of rebuttal, because the Respondent participated in the arbitral proceeding. |
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1 Law # 9307 of September 23rd, 1996
2
Decree n. 1902 of September 05, 1996
3 Decree n. 4311 of July 23rd, 2002
4 Chapter VI of the BAA governs the Recognition and Enforcement of Foreign Arbitral Awards. Article 34 establishes that "[a] foreign award shall be recognized and enforced in Brazil in accordance with the international treaties with validity in the internal system and, in the absence of that, strictly according to the terms of this law. Article 34, sole paragraph, of the BAA defines that "[a] foreign award is considered to be one which has been rendered outside of the national territory", and article 35 states that "[t]o be recognized and enforced in Brazil the foreign award is only subject to homologation by the Federal Supreme Court" ("STF"). The BAA eliminated the former "double exequatur" requirement, whereby the foreign award had to be first recognized by the judicial authority of the country where it was rendered.
5 The STJ counts on thirty three justices against eleven at the STF
6 The expression in Portuguese is "sentencas estrangeiras" which are considered to be not only decisions by state-court judges but also arbitral awards.
7 All awards rendered in Brazil, regardless the nationality of the parties, or the presence of an element of international character, are considered to be domestic awards.
8 On May 4, 2005, the STJ has issued the Resolution # 9, which establishes the procedure applicable to applications for the recognition of foreign awards and judgments. It is the Chief Justice who initially has the authority to grant recognition to all foreign awards. According to article 6 of this Resolution, if the party’s application is challenged by the other party, the case is assigned to one of the eighteen justices, who form the STJ’s Special Chamber.
9 SEC n. 856-EX (2005/0031430-2), published at Official Gazette on 06.27.2005, p. 203 and RevFor vol. 384 p. 251 and RevFor vol. 382. p. 304
The acronym "SEC" is the abbreviation for "Sentenca Estrangeira Contestada", which means that the request for recognition has been challenged.
10 Art. 4 – An arbitration clause is an agreement by which the parties to a contract undertake to submit to arbitration the disputes which may arise with respect to that contract. Paragraph 1 – The arbitration clause shall be in writing and it can be inserted in the main contract or in a document to which it refers (Author’s unofficial translation).
11 See Oleaginosa below
12 The Court held that "[i]ndeed, judicial record does not contain any exchange of letters between the parties concerning the acceptance of the arbitral clause to resolve future disputes. Actually, article II, numeral 2, of the New York Convention provides that (…) and this leads to the immediate conclusion that homologation is impossible. However, one special aspect deserves special attention, as described below. It is widely known that the custom in international commercial transaction is to refer to arbitration any dispute arising ourt of the relevant contracts. It is also a given fact that in cotton purchase and sales transactions, the Liverpool Cotton Association, Ltda. has traditionally acted as an arbitration court for this industry. If the record accurately reveals that the defendant actually submitted its defense without ever objecting to arbitral jurisdiction, it does not seem reasonable to me to deny the claim for recognition." Id. p. 205. (informal translation)
13 SEC 866 – EX (2005/0034926-5), published at Official Gazette on 10.16.2006, p.273
14 SEC n. 802-EX (20050032132-9), published at Official Gazette on 09.19.2005, p. 175
15 Informal translation
16 SEC n. 887-EX (2005/0034903-8), published at Official Gazette on 04.03.2006, p. 196
17 SEC n. 874-EX (2005/0034908-7), published at Official Gazette on 05.15.2006, p. 142
18 Article 39, sole paragraph – It shall not be considered a violation of national public policy, the notification of the Brazilian party, whose domicile is in Brazil, within the framework of the arbitration agreement or in accordance with the procedural law of the country where the arbitration was held, including the use of summon by mail with unequivocal proof of receipt, as long as it assures the Brazilian party reasonable time to exercise its right of defence. (informal translation)
19 SEC n. 833-EX (2005/0032212-5), published at Official Gazette on 10.30.2006, p. 209
20 Although unnecessary for the purpose of recognition of foreign award
21 SEC 760-EX (2005/0123948-2), published at Official Gazette on 08.28.2006, p. 199
22 SEC 885-EX
23 Article R-42(b) of the AAA Commercial Rules, in effect on July 1, 2003, expressly allows for unreasoned award.
24 Article 26 - The mandatory requirements of the arbitral award are:
I - a report containing the names of the parties and a summary of the dispute;
II - the grounds for the decision where questions of fact and law shall be analyzed;
III - the opinion wherein the arbitrators shall resolve questions that are submitted to them and shall establish the time frame for the compliance with the decision, if applicable; and
IV - date and place where it was rendered
25 Interlocutory Appeal n. 160213-7/01, Parana State Court of Appeals, judgment rendered on June 29, 2004.
26 Agravo de Instrumento n. 174.874-9 – Parana Court of Appeals
27 The Popular Action ("acao popular") aims to defend the public interest as defined in the article 5, item LXXIII of the Brazilian Constitution which holds that "any citizen has standing to institute an action seeking to annul an act to the public property or to property pertaining to an entity in which the State participates, to administrative morality, to the environment, and to historical and cultural monuments, and the plaintiff shall, except in the event of proven bad faith, be exempt from court costs and from the burden of loss of suit".
28 Appeal n. 247.646-0 – Parana Court of Appeals
29 Art. 173, paragraph 1: "Public companies, mixed capital companies, and other entities engaged in economic activities are subject to the specific legal regimes governing private companies, including those with respect to labor and tax liabilities." (informal translation).
30 Case CEEE vs. AES. 18, Revista de Direito Bancário e de Mercado de Capitais e de Arbitragem, 389.
31 Joaquim de Paiva Muniz, The Development of Brazilian Decisional Law Favoring the Arbitrability of Disputes Involving State Entities, World Arbitration & Mediation Review, p. 223-27
32 Prepared by Eleonora Pitombo, partner of Castro, Barros, Sobral, Gomes Advogados, in São Paulo, Masters in Arbitration – Université de Paris II – Panthéon Assas, member of the Board of Directors of the Brazilian Arbitration Committee.
33 The Federal Supreme Court previously had original jurisdiction in matters of ratifying foreign court and arbitral awards. This responsibility was transferred to the Superior Tribunal of Justice (the highest non-constitutional court)
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* Brazilian attorney, Foreign Legal Consultant with Buchanan, Ingersoll & Rooney PC – Miami Offices; adjunct Professor of Arbitration in Latin America at the University of Miami – School of Law; LL.M – University of Miami (2006) and University of London (1993)