by Fernando Eduardo Serec & Antonio M. Barbuto Neto:
Introduction
After a series of consumer-related measures to jumpstart the economy amid the financial crisis, Brazil seems finally ready to address congestion at airports and on the roads and railways.
As the recently privatised airports undergo major expansion works, the government has unveiled a multi-billion dollar programme to rehabilitate the country's frail infrastructure by transferring the construction of roads and railways to the private sector. The initiative is regarded as yet another attempt to remove the barriers that seem to be slowing down the country's march towards economic powerhouse status.
Brazil is reliant on foreign capital to accomplish this goal. Foreign investors are accustomed to having complex infrastructure disputes decided by a panel of neutral persons outside the local judiciary; the government has therefore made sure that arbitration is included as a mechanism for the resolution of controversies under the respective concession agreements.
For this reason, the concession agreements of the recently privatised airports of Sao Paulo, Campinas and Brasilia contain arbitration clauses subjecting any and all disputes to International Chamber of Commerce arbitration, which is to be seated in Brazil and undertaken in Portuguese. Although disputes under concession agreements must be held in Brazil and in Portuguese,(1) the government's decision to submit the airports' privatisation to a prominent international arbitral institution sends a clear pro-arbitration message to all interested foreign investors.
However, two relevant projects soon to be auctioned by the government in its effort to fix these problems appear to be a step backwards in the government's position on arbitration, particularly concerning major infrastructure works.
The draft concession agreement for the high-speed railway between Sao Paulo and Rio de Janeiro provides that parties shall resort to arbitration to resolve any and all disputes "that are not related to financial/economic issues related to the Contract".(2) The draft concession agreement for the highways is even more restrictive, removing from arbitration "discussions about the restoration of the Contract's financial-economic equilibrium, as well as financial/economic disputes between the parties".(3)
The limited scope of both clauses renders arbitration impractical for most types of dispute arising from either concession agreement. It could in fact be questioned whether any kind of dispute under these agreements would actually trigger arbitration.
These defective arbitration clauses, as they stand today, contradict the government's position in relation to airports' privatisation, as reflected by the perfectly enforceable arbitration clauses signed by the winning consortiums of three important Brazilian airport hubs.
More importantly, the exclusion of financial and economic issues from arbitration is at odds with the precedents rendered by the Superior Court of Justice, the highest authority on federal law issues, including its interpretation of the Arbitration Act. Holding that public companies are indeed subject to arbitration, the court has emphasised that "restoring the contract's financial/economic equilibrium" is well within the jurisdiction of arbitrators, as this type of dispute "does not involve an inalienable right".(4)
Both concession agreements are still far from being awarded and interested parties in the bidding process still have an opportunity to comment on the draft agreements. The arbitration clauses are therefore likely to be questioned by both companies and academia. If the government is serious about arbitration, these clauses should be redrafted to ensure an alternative means of dispute resolution that is not only authorised by the law, but also routinely enforced by the nation's highest court.
There are plenty of bumps in the long and winding road to economic growth; arbitration should not be one of them.
For further information on this topic please contact Fernando Eduardo Serec or Antonio M Barbuto Netoat Tozzini Freire Advogados by telephone (+55 11 50 86 50 00) or by fax (+55 11 50 86 55 55) or by email (fserec@tozzinifreire.com.br or abarbuto@tozzinifreire.com.br).
Endnotes
(3) Clause 35.1.1(i) of the draft concession agreement for roads BR‑040/DF/GO/MG and BR-116/MG, available here.
(4) REsp 904813/PR, Reporter Ministra Nancy Andrighi, 3rd Chamber, decided on October 20 2011, available here.
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