07 June 2010
- Article by Fabiana Videira Lopes*
Arbitration is increasingly being chosen as a method of
resolving disputes in contracts involving Brazilian parties. A key
concern, both for Brazilian parties and for international parties
doing business with Brazilian parties, is whether arbitral awards
made in another jurisdiction can be recognized and, as a result,
enforced, against counterparties with assets in Brazil.
Background: Recognition of foreign arbitration awards in
Brazil
Law 9307, the Arbitration Law, was enacted in Brazil in 1996.
Although the Arbitration Law initially faced constitutional
challenge, the Brazilian Supreme Court ultimately held it to be
constitutional in 2004. This has significantly encouraged the
inclusion of arbitration clauses in contracts involving Brazilian
parties.
Although Brazil signed the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (known as the New York
Convention), which was internationally in force as of 7 June 1959,
it was only included in Brazilian law upon the publication of
Decree 4311 on 23 July 2002. The New York Convention is in line
with the Brazilian Constitution and the Civil Procedure Code, which
both require the recognition of foreign judgments.
The procedure for recognition of foreign awards
In order to be enforced in Brazil, foreign arbitral awards must
first be recognized by the Superior Tribunal of Justice (STJ), the
highest court in Brazil for non-constitutional matters. In deciding
whether to recognize a foreign arbitral award, the STJ will not
analyze the merits of the award, but will only examine the formal
requirements specified in the Arbitration Law, the New York
Convention and STJ Resolution 9, which provides the domestic rules
for the recognition procedure. The requirements of the New York
Convention and the Arbitration Law include the presentation by the
requesting party of the duly authenticated original award or a duly
certified copy of it and the original agreement of the parties to
submit the dispute to arbitration (together with a sworn
translation of any foreign documents into Portuguese)1.
Both the New York Convention and the Arbitration Law also set out
the basis on which recognition of the award may be refused. This is
when it is proved that:
(i) the agreement containing the arbitration clause is not
valid;
(ii) the party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings, or was otherwise unable to present his
case;
(iii) the award deals with a difference not contemplated or not
falling within the terms of submission to arbitration or it
contains decisions on matters beyond the scope of the
submission;
(iv) the composition of the arbitral authority or the procedure
is not in accordance with the agreement of the parties or the law
of the country where the arbitration took place;
(v) the award has not yet become binding on the parties or has
been set aside or suspended by a competent authority of the country
under whose law the award was made;
(vi) according to the law of Brazil, the subject matter of the
dispute is not capable of resolution by arbitration; or
(vii) the recognition or enforcement of the award would be
contrary to public policy in Brazil2.
Contested recognition proceedings
As long as the requirements set forth in the New York Convention
and the Arbitration Law are satisfied and enforcement of the award
would not be contrary to national sovereignty or public policy, the
successful party in a foreign arbitration can be confident that the
award will be recognized in Brazil. The party seeking recognition
must only follow the procedural rules set by the STJ in its
Resolution 9, which include service of notice on the losing party
to the arbitration, allowing it the opportunity to contest the
recognition proceedings. If the recognition is contested, the only
arguments that can properly be advanced relate to whether these
requirements have been met. The case will be sent to the Special
Court of the Superior Tribunal of Justice, which will request a
legal opinion from the Federal Prosecutor's Office and then
decide whether the formalities have been satisfied.
If a party contests the recognition of the award, the
recognition proceedings will take longer than in the case of
unopposed recognition proceedings. Analysis of the STJ's
website shows that when recognition is contested, it
takes an average of 16 months to reach a decision, while for
uncontested cases the average is six months. However, even taking
into account the time it would take to have an arbitral award
recognized, arbitration proceedings will still be significantly
faster than litigation in the Brazilian courts.
In contested recognition proceedings, an adverse costs award is
usually made by the court, because any challenge to the recognition
of the award delays the final conclusion of the case and requires
additional work by counsel for the prevailing party. However, since
the amounts involved in arbitral awards are generally high, the STJ
has taken the parameters of Article 20(4) of the Civil Procedure
Code as a basis for awarding legal fees, rather than those set out
in Article 20(3) of the Code. The parameters in Article 20(4) allow
the court a wide discretion in making an adverse costs order at
what is deemed a fair amount considering the nature and importance
of the case and the effort involved. In contrast, Article 20(3)
provides for the Court to award costs of 10 to 20 percent of the
amount of the award (which, in a high-value case, may be
disproportionate).
Since the STJ assumed authority to recognize foreign arbitral
awards, it has published on its website 22 decisions relating to
contested requests for the recognition of foreign arbitral awards.
Of these, only seven requests for recognition were denied, three
for absence of a signature on the arbitration clause or submission
agreement, two because the petitioner had no interest in the award
and two for the failure to summons the opposing party in the
recognition proceedings (which, as stated above, is an essential
requirement). It should be noted that when recognition is refused
for a failure to summons the opposing party, the petitioner can
file for recognition again once it has duly served notice of the
recognition proceedings.
The effect of recognition
Following recognition of the arbitral award, there is the
question of its enforcement. A recognized award has the status of
an enforceable judicial instrument (the same as a domestic court
judgment). This makes the process fairly straightforward and
assured.
It can be concluded that as long as the rules of the New York
Convention, the Arbitration Law and STJ Resolution 9 are satisfied,
the successful party in a foreign arbitration can be sure that a
foreign award will be recognized in Brazil and that the enforcement
proceedings will be straightforward. In comparison to resorting to
the Brazilian courts to resolve disputes, arbitration is much
quicker, even taking into account the need to recognize and enforce
the award, not to mention the other advantages of arbitration, such
as greater privacy. This explains the growing trend of parties
choosing arbitration to resolve disputes in international
agreements involving Brazilian parties.
* Fabiana Videira Lopes is a partner in the
Litigation and Arbitration practice of Campos Mello Advogados,
based in Rio de Janeiro. Her extensive civil litigation and
arbitration practice encompasses civil liability, aviation, civil
and commercial contracts and public law.
Footnotes
1. Article 37, I and II of the Arbitration Law and Article
IV of the New York Convention
2. Articles 38 and 39 of the Arbitration Law and Article V
of the New York Convention
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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