The facts
On January 9, 2008, in the middle of the Amazon Rainforest, the dam
of a hydroelectric power plant ruptured liberating 3.1 billion liters of
water and precipitating an environmental mishap. Brazilian authorities
hastily cornered the electricity generation company. The electricity
generation company hastily pointed the finger at the builder of the
hydroelectric power plant. The construction contract between the company
and the builder had an arbitration clause. While the necessary steps
for the commencement of arbitration were taken, one of the parties
applied for an interim measure of protection before a state court. In
due time, the arbitral tribunal asserted its jurisdiction to settle the
merits of the dispute. The state court, alas, did the same.
In a nutshell, this was the seed for conflict of jurisdiction no. 111.230 brought before the Superior Court of Justice (Superior Tribunal de Justiça), the highest Brazilian court for non-constitutional matters.
The controversy
As the saying goes, better the devil you know – than the one you
don’t. The familiar strife for jurisdiction between arbitrators and
state courts notwithstanding, an intricate new question was raised: did
the Superior Court of Justice have jurisdiction to settle the conflict
of jurisdiction between the arbitral tribunal and the state court?
According to the principle of compétence-compétence, isn’t the
arbitrator the single individual who can trace the boundaries of his own
jurisdiction during the arbitration, the parties’ agreements on the
matter considered?
The Superior Court of Justice proceeded willingly to an analysis of
these meta-jurisdictional issues under the scrutiny of the local
arbitral community.
In one corner of the ring …
Part of the spectators denied that the Superior Court of Justice had
the said jurisdiction. By virtue of Article 8 of the Brazilian
Arbitration Act, the arbitrator has jurisdiction to decide, on his own
initiative or at the parties’ request, the issues concerning the
existence, validity and effectiveness of the arbitration agreement. In
the fact that only the arbitrator is authorized to do so lies the true
meaning of compétence-compétence.
Though an arbitrator’s jurisdiction may be denied by a state court
that reviews his arbitral award, during the arbitral procedure the
arbitrator is the one and only judge of his own jurisdiction and there
is no exception to this rule. Otherwise, arbitrators would fare badly
indeed when it came to ascertaining their authority before any
challenger.
A small crowd pondered that, all things considered, the
meddlesomeness of the Brazilian judiciary branch in arbitral matters had
been very mild so far and it had best stay so.
In the three other corners of the ring …
Contrariwise, respectable voices were raised in favor of the
jurisdiction of the Superior Court of Justice to rule on the conflict of
jurisdiction between the arbitral tribunal and the state court. It was
argued that Article 18 of the Brazilian Arbitration Act provides that
the arbitrator is a judge in fact and in right, and accordingly his
conflicts of jurisdiction should be settled as any other judge’s. It was
also reasoned that there was too great a hazard to have contradictory
awards issued by the arbitral tribunal and the state court, and the
Superior Court of Justice should prevent it.
Moreover, it was said that justice delayed would be justice denied:
if a prompt answer by the Superior Court did not surmount the deadlock
without further ado, the parties would suffer a long wait in case the
matter was conveyed before a lower state court. All in all, the Superior
Court of Justice had traditionally supported arbitration and would do
so again this time by recognizing that the jurisdiction was the arbitral
tribunal’s by right. The same Court had already held that the
jurisdiction of the state court ceased when the arbitral tribunal was
constituted, and had asserted that provisional measures granted by
courts could be reversed by arbitrators.
The ruling
To the dropping jaws of some and the approving nods of others, the
Superior Court of Justice asserted its jurisdiction to rule on conflicts
of jurisdiction between arbitrators and state courts. The Court held
that the Constitution conferred to it the jurisdiction to rule on
conflicts regarding not only tribunals of the judiciary branch, but also
tribunals of an arbitral nature. This course of action was allegedly
pursued in order to avoid an imminent vacuum of authorities empowered to
overcome the dilemma, in which case there would be a twofold
jurisdiction and the risk of contradictory decisions.
Eventually, the Court held that the arbitral tribunal, and not the
state court, had jurisdiction to rule on the subject matter of the
dispute.
Comment
This decision is viewed by some as a victory for arbitration, in
accord with the Court’s traditional pro-arbitration stance. However, it
is in fact a Pyrrhic victory, one with such high a cost that it will
ultimately lead to defeat. Whereas a particular arbitral tribunal has
had its jurisdiction confirmed, the arbitrators of Brazilian proceedings
elsewhere see a black cloud hovering over their compétence-compétence
prerogative. The decision issued on conflict of jurisdiction no.
111.230 opens a small window towards insecurity as it antagonizes what
Emmanuel Gaillard first named the negative effect of compétence-compétence.
The Court is alien to the idea that a conflict of jurisdiction between two fora
may be solved by one of them. It clings to the rooted notion that only a
third, uninvolved entity could settle such a contention. However, the
settlement of the conflict by one of its parties is in fact what the
Brazilian Arbitration Act provides when it upholds the principle of compétence-compétence
on its Article 8. At the same time, Article 32(II) of the Act confers
upon the judiciary branch the authority to appreciate the arbitrator’s
jurisdiction if and when annulment proceedings are initiated.
It has been repeatedly said that the conflict of jurisdiction in
question had to be quickly solved by the Court before the arbitral
tribunal and the state court proffered contradictory decisions.
Nevertheless, the anxiety to solve this particular case might
reverberate negatively over future cases. The Superior Court of Justice
might be seeing the trees and missing the wood. Whether this bitter pill
will have blessed effects remains yet to be seen.
It is noteworthy that more than three years have elapsed since the
conflict of jurisdiction was finally appreciated. It is true that the
magistrates of the Superior Court of Justice have an overwhelming
workload, but the fact remains that the appreciation of the matter by
the Court is not timely enough for parties who have chosen arbitration
precisely as an alternative to the judiciary branch.
Source: KluwerArb
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