Monday, August 18, 2014

Preliminary Injunctions and the Arbitral Competence in Brazilian Law

(by Vinicius Fedrizzi – Member of the Executive Group of Arbitration of the Chamber of Arbitration of Federasul)

Many cases, in which the parties opted to use arbitration as the method for dispute resolution, require a preliminary injunction in order to avoid harm to one party before the final decision. The Brazilian Arbitration Statute has a rule that allows arbitrators to grant such type of remedy if the party demonstrates that the legal conditions to a preliminary decision are present.
In some situations, due to how the procedural rules of some chamber of arbitrations are defined, it may take time to constitute the arbitral tribunal. For example, the delay may occur because the arbitrator refused his nomination or the arbitrators chosen by the parties still haven’t decided who would be the third member and president of the tribunal. Therefore, it is necessary that the law define who must decide if the preliminary relief should be granted or not.
In fact, this was the issue decided by the Brazilian Superior Court of Justice by the 3rd Section in the special appeal number 1.297.974-RJ, as we will comment bellow. The high court decided that the judiciary has power to decide about the temporary injunction to avoid harm to the claimant if the arbitral tribunal is not constituted. However, once defined the arbitrators to the case, the procedure must be transferred to arbitration, and the tribunal may or may not sustain the decision issued by the judge.
The decision was based on the idea that the law cannot permit that a party who has rights remains helpless. If for any reason, it is not possible for arbitration to provide an urgent measure in order to avoid damages to the petitioner, the Judicial Power has the duty to provide a solution until the constitution of the arbitral tribunal, without preventing the arbitrators’ competence. 

The Case:

The parties (Itarumã Holdings and Participações em Complexos Bioenergéticos S.A” – Bioenergetics’ Complex Holdings) signed a partnership contract with the goal of implementing the production of fuels derived from renewable energy sources. To operate the deal, they created a company called “Complexo Bionergético de Itarumã – CBIO” (Bioenergetics’ Complex of Itarumâ). While executing the contract, the company PCBIOS (“Participações em Complexos Bioenergéticos S.A” – Bioenergetics’ Complex Holdings) alleged breach of contract, and sued in a Judicial Court its partner, in order to obtain a decision that would suspend its obligations and rights in the corporation CBIO. The claimant used a legal procedure in judicial court that would prepare the future arbitration that would take place.
In the trial, the Judge dismissed the case. The Court of Appeal, however, reversed the decision. The reason adopted by the State Court of Justice of Rio de Janeiro to reverse the first trial was that the arbitration clause did not avoid the state jurisdiction to assess the case, especially when the court is called to decide about an urgent measure. The losing party presented the Special Appeal, which is the legal remedy to take the discussion to the Superior Court of Justice (the second highest Court of Brazilian Judiciary system).
The reasoning adopted in the special appeal by Itarumã Holdings (the losing party) was that the constitution of the Tribunal has the effect to avoid the jurisdiction of the state court, and only the arbitrators have the power to decide the controversy. It is important to mention that the Brazilian Arbitration Statute does have a rule authorizing the arbitrators to decide about urgent matters before the final solution of the controversy (article 22, §4º of Statute number 9.307/96). Brazilian Jurists and the Jurisprudence also recognize this possibility, so there is no question on that. In the other hand, the arbitrator does not have power of imperium, which means that the arbitrator cannot execute his injunctive relief; therefore, he may seek for judiciary’s collaboration to provide effectiveness to the decision.
According to Minister (=Judge of the Higher Court) Nancy Andrighi, Rapporteur of the case, the issue was about the conflict of competence between the Arbitral Tribunal and the State Court. Who should decide about a preliminary procedure? In the case, the fact was that the tribunal was already constituted, which both parties in their reasoning in the court of appeal admitted.
Although, the question was about if the procedure of the injunction should continue in the Judiciary even in the presence of an arbitral tribunal. A small group of law doctrine understands that the Judiciary should only send a copy of the procedure to the tribunal, while others say that the procedure must go completely to the arbitrators, which means, the judiciary must not keep it. Minister Andrighi adopted the second position, stating that the “original documents should be directly sent to the arbitral tribunal”.
Finally, the Superior Court of Justice concluded that the State Court of Rio de Janeiro could not had decided the appeal, because, in that moment, the tribunal was already constituted. Therefore, there was no competence of the state court to judge the preliminary injunction.
In conclusion, the reasoning of the Brazilian High Court was pro-arbitration and it stated the necessary cooperation between the private and the public jurisdiction. This cooperation is essential, in order to protect the rights of the parties when adopting the arbitration as an alternative dispute resolution method. 

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