The purpose of this article written exclusively for the “Transnational Notes” of NYU’s Center for Transnational Litigation, Arbitration and Commercial Law, directed by Professor Franco Ferrari, is to provide a brief overview of recent case law regarding the recognition of foreign arbitral awards in Brazil.
According to the Brazilian Arbitration Act (“Lei 9.307/96” or “BAA”), an arbitral award rendered outside Brazil shall be recognized by the competent authority to produce its effects within the Brazilian territory.
Since the 2004 Amendment to the Brazilian Federal Constitution[i], the Superior Court of Justice (“Superior Tribunal de Justiça” or “STJ”) is the competent authority to decide on the recognition of foreign awards in Brazil, including arbitral awards.
Such recognition is governed by three sets of rules: (i) first, international treaties adopted by Brazil, such as the Inter-American Convention on International Commercial Arbitration (1975)[ii], adopted in 1996, the Inter-American Convention on the Extraterritorial Effectiveness of Foreign Arbitral Award (1979)[iii], adopted in 1997, and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“the New York Convention”), adopted in 2002[iv]; (ii) the BAA, already referred to; and (iii) the STJ Resolution 9, of 4 May 2005 (“Resolution 9/2005”).
II. Case law from 1996 to 2009
In 2010, the Brazilian Arbitration Committee (“CBAr”), an academic nonprofit organization, concluded a comprehensive empirical research on judicial decisions related to arbitration matters and the application of the BAA[v].
One of the reports dealt specifically with the recognition of foreign arbitral awards, analyzing judicial decisions rendered between November 1996 and July 2009. It concluded that the STJ and the Federal Supreme Court (which was the competent authority to recognize foreign awards until 2004) were highly favorable to the recognition of foreign arbitral awards. Recognition was denied only in a small percentage of cases.
III. Recent developments (2011-2013)
STJ’s “pro arbitration” approach is confirmed by recent case law.
We analyzed twelve arbitral awards submitted for recognition to the STJ between 2011 and 2013. Out of those awards, only one was not recognized (Kanematsu v. Advanced Telecommunications Systems), due to the lack of proof of a valid arbitration agreement. Such cases are presented in more detail below. All the cases and facts discussed below are public and may be found in the STJ’s website[vi], searching by the reference included in the footnotes.
A. Comverse v. American Telecommunications do Brasil[vii]
Claimant Comverse Inc.sought the recognition of the arbitral award rendered in New York City. The arbitral tribunal decided that the American Telecommunications Inc. Chile and the American Telecommunications do Brasil Ltda. – a Brazilian subsidiary of the Chilean company – should pay damages to Claimant. The Brazilian subsidiary, Respondent in the recognition proceedings, alleged that it was not a party to the original contract and was not bound by the arbitration clause. Claimant responded that, during the arbitral proceedings, counsel for the Chilean company sent a letter to the arbitral tribunal declaring that the affiliated companies (including Brazilian affiliate) (i) agreed to be bound by the arbitration clause, (ii) accepted the Arbitral Tribunal’s jurisdiction and (iii) that the counsel was going to represent them. The question was whether or not such letter could be considered a valid arbitration agreement and a valid counsel nomination.
The STJ answered those questions in the affirmative. It found that, according to Art. 38 II of BAA[viii] and article V (1) (a) of the New York Convention, the award shall be recognized if the arbitration agreement is valid “under the law to which the parties have subjected it”. The STJ clarified that the applicable law to party representation is not necessarily Brazilian law, but the rules chosen by the parties. According to the institutional arbitration rules applicable to the case, the parties were allowed to nominate their counsel by sending a letter to the arbitral tribunal. Furthermore, the representative of the Brazilian company had been present in the hearings, including when the Arbitral Tribunal and the parties decided to include the Brazilian company, as well as the other subsidiaries, in the proceedings, and never objected to the arbitral tribunal’s jurisdiction. The STJ concluded that, according to the principle of good faith, a Respondent in an arbitration proceeding cannot accept to abide by the arbitration clause and then oppose to the jurisdiction of the arbitral tribunal. The STJ also decided that the party opposing the recognition of an arbitral award bears the burden of proving the existence of grounds for such recognition to be denied, burden which was not fulfilled in the present case.
B. Western Bulk Carriers v. A.P. Oxidos[ix]
Western Bulk Carriers sought the recognition of the award rendered by an arbitral tribunal in London ordering A.P. Oxidos Industria e Comercia Ltda. (“Respondent”) to pay damages for breach of contract. Respondent alleged that the requirements of articles 37 of the BAA[x], 5 III and IV of the Resolution 9/2005 were not fulfilled, because only the signature of the English notary was legalized, not the signature of the arbitrator, and the arbitral award annexed to the recognition proceeding was neither complete nor translated.
First, STJ rejected the argument concerning the arbitral award since two copies had been annexed to the proceedings and one of them was complete. The STJ then analyzed the meaning of the word “authenticated” in Art. 37 I of the BAA. It reasoned that, according to case law, the recognition of the notary’s signature is valid under this article of the BAA. Secondly, the STJ acknowledged that the award had become binding on the parties. Thus, the requirements were fulfilled. Thirdly, it added that there was no violation of public policy. The arbitral award was granted recognition.
C. LDCB v. LVL de C[xi]
Louis Dreyfus Commodities Brasil S.A sought the recognition of the arbitral award rendered by the arbitral tribunal of the International Cotton Association. The Arbitral Tribunal decided that LVL de C (“Respondent”) should pay damages for breach of the purchase agreement of cotton. Respondent opposed to the recognition of the arbitral award alleging that the arbitration agreement was invalid due to formal requirements for standard form contracts under Art. 4 §2 of the BAA[xii]. It also alleged that it had not been duly notified (Art. 5 II of the Resolution 9/2005).
STJ stated that the parties had signed every page of the contract (even the page containing the arbitration clause), and that the clause seemed to be valid according to the law chosen by the parties (Art. 38 II of the BAA). Furthermore, the STJ reminded that it is not allowed to re-examine the merits of the dispute in a proceeding for recognition of foreign award. Hence, the STJ clarified that it could not, in the case at hand, define the nature of the contract, and determine whether the contract was a standard form contract or not, an issue which had not been dealt with by the arbitral tribunal. The arbitral award was granted recognition.
D. YPFB Andina v. Univen Petroquímica[xiii]
YPFB Andina S.A. and Univen Petroquímica Ltda. entered into a contract for the supply of natural gas during three years. According to the allegations, YPFB Andina suspended the supply of gas before the end of the three years. The arbitral tribunal decided that the contract was validly suspended in light of “force majeure” events. Univen Petroquímica Ltda. (“Respondent”) argued that the arbitral award could not be recognized in Brazil because: (i) the arbitral tribunal had been partial, (ii) public policy had been violated, and (iii) a setting aside procedure was pending in the place of arbitration.
The STJ rejected the first argument because there was nothing in the facts indicating that Respondent opposed to the arbitral tribunal when it had the opportunity to do so. As regards the suspension of the contract and the alleged public policy violation, the STJ reminded that it is not allowed to re-examine the merits of the case, since its power was limited by articles 38 and 39[xiv] of the BAA. Finally, as regards the setting aside procedure, the STJ decided that Respondent did not prove it, and therefore the argument could not be considered. The arbitral award was granted recognition.
E. Nuovo Pignone v. Petromec[xv]
In this case, the STJ clarified that, according to Art. 34 of the BAA[xvi], an arbitral award is considered foreign when it is rendered outside Brazil. The BAA does not take into consideration the location of the arbitration chamber which administered the arbitral proceedings. For a comprehensive analysis of this case, we refer to Daniel Aun’s article also published in the NYU “Transnational Notes”[xvii].
F. Kanematsu v. Advanced Telecommunications Systems[xviii]
Kanematsu USA Inc. sought the recognition of the award rendered by the AAA, which decided that the Advanced Telecommunications Systems do Brasil Ltda. (“Respondent”) should pay damages. Respondent opposed to the recognition arguing the inexistence of a contract signed by the parties and the absence of legal reasoning in the award.
The STJ denied recognition, finding that the contract between the parties had not been signed and Respondent objected to the jurisdiction of the arbitral tribunal during the arbitral proceedings. The STJ cited Plexus[xix], in which it was decided that, since the choice of arbitration is an exception, the express and clear will of the parties is mandatory. Hence, the STJ concluded that there was no proof of the existence of the arbitration agreement and that recognizing this award would be a violation of articles 37 II and 39 II of the BAA.
G. GE Medical Systems v. Tecnimed Paramedics[xx]
The recognition of this arbitral award rendered in Miami, FL, United States (SEC 853/EX) is related to two US state judgments validating the arbitration agreement, which had been also submitted for recognition to the STJ (SEC 854/EX).
Both recognition proceedings were suspended because one of the parties had previously sought the declaration of invalidity of the arbitration agreement before a Brazilian court, in the State of Rio Grande do Sul. The State Court of Appeals decided that the arbitration agreement was invalid and an appeal related to such procedure was pending in the STJ at the time both recognition proceedings were initiated. This is why, at the request of one of the parties, the STJ decided to suspend both recognition proceedings.
Later on, GE Medical Systems Information Technologies Inc. and General Electric do Brasil S.A. requested the continuation of the recognition proceedings before the STJ. In granting such request in the Regimental Appeal of SEC 854/EX, in 2011, the STJ decided that setting aside proceedings and recognition proceedings may exist and develop in parallel (no lis pendens)
The appeals against the State Court of Appeals decision to the STJ were found invalid for violation of formal procedural requirements under Brazilian law[xxi]. Therefore, the State Court of Appeals decision rendering the arbitration agreement invalid turned into res judicata.
However, in deciding SEC 854, the STJ found that such res judicata did not affect the recognition of the two US state judgments validating the arbitration agreement because the grounds (“causa de pedir”) for such lawsuits were different. Therefore, the STJ decided to grant partial recognition to the US state judgments, excluding some civil and criminal sanctions. The recognition of the arbitral award is still pending in the STJ (SEC 853/EX).
H. Weil Brothers Cotton Inc. v. Espólio Pedro Ivo de Freitas[xxii]
Weil Brothers Cotton Inc. sought the recognition of the arbitral award rendered by the arbitral tribunal of the International Cotton Association in 2008. The arbitral award decided that the assets (“espólio”) of Pedro Ivo de Freitas – Pedro Ivo de Freitas being deceased – should pay damages for breach of the cotton purchase agreement. Respondent’s arguments against recognition were, among others, that (i) the arbitral tribunal was not competent since there were two different contracts, (ii) the arbitration agreement contained in a standard form contract did not observe the form requirements of the BAA and, therefore, was invalid and ineffective (Art. 4 §2 of the BAA), (iii) the contract was tainted with fraud, and (iv) it was not duly notified according to Art. 39 of the BAA.
In dismissing all of Respondent’s arguments and granting the enforcement of the award, the STJ decided that (i) the arbitral tribunal was competent because the International Cotton Association was mentioned in both contracts; (ii) the STJ cannot determine the validity and effectiveness of the contract in a proceeding for recognition of a foreign award, because such analysis would entail an examination of the merits of the dispute, which is prohibited by Brazilian law, and also in light of the fact that there was a lawsuit pending in Brazil to deal with the fraud allegations; and, finally, (iii) Claimant proved the existence of Respondent’s notification and Respondent’s awareness of the arbitral proceeding.
I. Keytrade AG v. Ferticitrus Indústria e Comércio de fertilizantes[xxiii]
Keytrade AG sought the recognition of an arbitral award rendered against Ferticitrus Indústria e Comércio de fertilizantes Ltda. (“Respondent”) by an arbitral tribunal in London. The dispute concerned “demurrage” expenses related to Respondent’s debarkment’s delay. Respondent opposed to the recognition of the award alleging that it had not been duly notified (Art. 38 III of the BAA) and that the compound interests in the sentence were a violation of public policy (Art. 39 II of the BAA).
The STJ rejected both arguments, deciding that (i) the notifications were made according to the law chosen by the parties, that is, the law of the place of arbitration (London), which allows for notification by email, fax or letter, in accordance with Art. 39 of the BAA, and the receipt of those notifications was proven; (ii) as regards the public policy argument, the STJ reminded that it is not any divergence with Brazilian law that shall suffice to fulfill the conditions of violation of public policy. The fundamental values of the Brazilian law system must be threatened to allow the STJ to re-examine the merits of the dispute, which is not the case at hand, because compound interests are also accepted in Brazil in certain types of contracts provided for in the Brazilian Civil Code (“contrato de mútuo”) and according to the requirements of Brazilian law.
J. Mandate Holdings LLC. v. Consórcio Europa[xxiv]
Mandate Holdings LLC. sought the recognition of an arbitral award rendered against Consórcio Europa by an arbitral tribunal seated in Los Angeles. The dispute related to the breach of the licensing agreement, containing an arbitration agreement.
Consórcio Europa (“Respondent”) argued that the arbitral award should not be recognized in Brazil because (i) there was no proof of power of attorney attributed to the vice-president of Mandate Holdings Llc., (ii) the Supreme Court of California had not recognized the award, as should be done according to the Californian civil procedure code, (iii) there was no proof that the award is the final judgment (res judicata), (iv) the contract is a standard form contract rendering the arbitration agreement invalid, and (v) Respondent had not been duly notified.
The STJ rejected all the arguments deciding that (i) the powers of the vice-president was recognized by the notary of Los Angeles; (ii) the recognition of a foreign award in Brazil is made only in accordance with Brazilian laws (the BAA and the Resolution 9/2005); (iii) according to the arbitration agreement, the award would be binding on both parties and had to be executed; (iv) the STJ cannot determine the nature of a contract in a proceeding for recognition of foreign award, since this would conduct to a re-examination of the merits of the dispute; and finally (v) a “letter rogatory” is not necessary to notify a party, since email, fax or a simple letter is enough, as long as the receipt can be proven.
K. Queensland Cotton Corporation Ltd. v. Agropastoril Jotabasso[xxv]
Claimant, Queensland Cotton Corporation Ltd., sought the recognition of the arbitral award rendered by the arbitral tribunal of the International Cotton Association in Liverpool against Respondent, Agropastoril Jotabasso Ltda. (former Agropecuária Basso Ltda.).
Respondent alleged that the award could not be recognized because (i) it had not been duly notified, (ii) the contracts signed by the parties were not included in the records, (iii) the award was unfair, (iv) the amount claimed in the recognition proceedings was higher than the amount included in the award, and (v) Olam International Ltd. is not a legitimate successor of Claimant since there was no proof of its power of representation in the records.
In dismissing all of Respondent’s arguments and granting the enforcement of the award, the STJ made it clear that it cannot determine the nature of a contract and the fairness of an award in a proceeding for recognition of a foreign award, because such analysis would entail a re-examination of the merits of the dispute, which is prohibited by Brazilian law.
L. Queensland Cotton Corporation Ltd. v. Espólio Pedro Ivo Freitas[xxvi]
Queensland Cotton Corporation Ltd sought the recognition of the arbitral award rendered by an arbitral tribunal under the International Cotton Association in Liverpool against the assets (“espólio”) of Pedro Ivo de Freitas (“de cujus”) (“Respondent”) – Pedro Ivo de Freitas being deceased.
Respondent opposed to the recognition alleging that it did not sign the contract containing the arbitration agreement and was never aware of the choice of arbitration.
The STJ decided that the successor of the de cujus is responsible for all debts, and there was proof of a duly notification made according the law chosen by the parties. The arbitral award was granted recognition.
Rafael F. Alves
LL.M. New York University, Arthur T. Vanderbilt Scholar – Class of ’10. Master of Laws, University of São Paulo. Senior Associate of the Arbitration Practice at L. O. Baptista Schmidt Valois Miranda Ferreira Agel Advogados. Director of the Brazilian Arbitration Committee.
Master of Law at the University of Fribourg, Switzerland. Currently working as a law clerk at Baker & McKenzie Zurich. Former intern at L.O. Baptista Schmidt Valois Miranda Ferreira Agel Advogados in São Paulo, and former assistant of Professor Pierre Tercier in Switzerland.