Arbitration involving Brazil's biggest television network

Brazilian Website Consultor Jurídico announced today that Rede Globo —Brazil's biggest television network and the fourth largest in the world after ABC, CBS and NBC— has filed a request for arbitration with the ICC last November.

The defendant is Portugal's TV Cabo. The controversy between the two parties relates to Rede Globo's cable channel GNT, which has been aired in Portugal by TV Cabo.

You can click here to read the news in Portuguese.

Restrictions on Parties' Representation in Brazilian Arbitration Proceedings

Today I just came across an article in the November 2006 issue of Baker & McKenzie's International Litigation & Arbitration Newsletter —International Arbitration – Pitfalls For Participants— which talks about a recent Rio de Janeiro chapter of the Brazilian Bar opinion "stating that only attorneys licensed to practice in Brazil may represent clients in local arbitrations governed by Brazilian law".

The article's authors state that "[a]lthough there is no statutory restriction on non-Brazilian arbitrators’ serving in Brazil, parties to arbitrations might fear, in the light of the Bar pronouncement, that such participation could lay the groundwork for subsequent challenges, in Brazil, to arbitration awards against Brazilian parties".

I have not seen this opinion of the Rio de Janeiro chapter of the Brazilian Bar, but I am very interested to get a copy of it. In any case, I can't see any legal basis for a Brazilian Court to prohibit a foreign lawyer from representing a party in arbitration proceedings in Brazil, even if —in a given case— the law applicable to the substance of the parties' dispute was Brazilian law. Section 21(3) of the Brazilian Arbitration Act is very clear when it lays down that "[t]he parties may be represented by an advogado, and may always be free to choose their representative or assistant at the arbitral procedure".

The above means that a party to arbitral proceedings in Brazil may choose an advogado as counsel, but it also means that the party may choose anybody to act as its representative in the proceedings, regardless of whether or not such advocate has a law degree or is registered with a local chapter of the Brazilian Bar as an advogado.

Considering the provisions of Section 21(3) of the Brazilian Arbitration Act, if Brazilian or foreign parties can be represented by non-lawyers (não-advogados) in arbitral proceedings under Brazilian law, what would be the legal basis for a Brazilian Court to prohibit a foreign lawyer act as counsel to a party arbitrating in Brazil? Sincerely, I can't see any reasonable arguments for such prohibition.

What the Rio de Janeiro chapter of the Brazilian —which I am a member— is attempting to do, without any merit, is to reserve the "arbitration market" to its own members (or Brazilian "advogados" in general). I strongly believe, however, that such attempt will not go any further than an "opinion" (which —by the way— is non-binding). At the most, it will be subject to a few articles and blawg postings!

Syria and Pakistan acceded to ICSID in 2006. Vietnam may be following soon

On January 25, 2006, Syria deposited with the World Bank its instrument of ratification of the Convention on the Settlement of Investment Disputes Convention ("ICSID Convention"). It became the 143th ICSID Contracting State.

On November 8, 2006, Pakistan has passed into law the ICSID Convention, which had long been signed and ratified (1965 and 1966, respectively). You can click here for the report.

As to Vietnam, the country has not yet signed the ICSID Convention, but it looks like this is going to take place still in 2006 (you can click here for the story).

Why the above news is headline to a weblawg dedicated to Brazilian arbitration law? Very simple: to date, Brazil has not signed the ICSID Convention.

What does Brazilian law say about the appointment of the arbitral tribunal?

As a principle, the arbitral tribunal is appointed in accordance with the parties’ agreement.

Due to the recognition of the principle of party autonomy, the Brazilian Arbitration Act (“BAA”) gives to the parties broad freedom to —by mutual agreement— either (i) establish their own rules for the appointment of arbitrators, or (ii) adopt any institutional arbitral rules they may chose (Section 13(3) of the BAA). It is important to highlight that Section 13(1) of the BAA establishes that the number of arbitrators must be uneven.

In the absence of such parties’ agreement, or if the arbitration agreement is silent, the concerned party may apply to the court with jurisdiction over the place of arbitration to appoint the arbitrator. The court is supposed to follow —to the extent possible— the procedure foreseen in Section 7 of the BAA.

Section 7(4) of BAA establishes that “if the arbitration clause fails to provide for the appointment of arbitrators, the court, after hearing the parties, shall rule thereon, being allowed to appoint a sole arbitrator to decide the dispute”.

Please, don't hesitate to comment or send me an e-mail.

What rules of procedure apply to arbitrations in Brazil? Is discovery allowed?

Brazilian law fully recognizes the concept of party autonomy (autonomia da vontade), subject only to matters of public policy (ordem pública) and morality (bons costumes). Therefore, parties to an arbitration agreement have freedom to either lay down the rules of procedure of their proceedings empower the arbitral tribunal to do so (as long as the selected rules of procedure comply with the following principles: (i) adversarial system; (ii) equal treatment of the parties — giving each party a reasonable opportunity to present its case—; (iii) impartiality; and (iv) arbitrator’s freedom of decision).

One Brazilian scholar understands that is possible for the parties to select a foreign law as the procedure law of arbitration, provided that such foreign law comply with the principles mentioned above, in the preceding paragraph [CARLOS A. CARMONA, ARBITRAGEM E PROCESSO 28 (1998)].

If the parties fail to select the arbitration's rules of procedure —or if they fail to indicate that this will be a resolution of the arbitral tribunal—, the arbitral tribunal is then authorized to take such decision, as it considers appropriate, as per Section 21(1) of the Brazilian Arbitration Act (“BAA”).

Brazilian law allows some "discovery": Section 22 of the BAA lays down that the arbitral tribunal —either at its own discretion or at the parties' request— may take the parties' deposition, hear witnesses, and determine the production of expert witness reports or other evidence. Parties may opt for the use of the IBA Rules on the Taking of Evidence in International Commercial Arbitration, a sort of “model discovery rules”, but US-style discovery is not permitted in international arbitrations where Brazilian law is the lex arbitri.

It is fair to say that BAA gives the parties —and the arbitrators— great freedom and flexibility to agree upon the arbitration rules.

Does Brazilian law sets forth any requirements, qualifications or qualities for arbitrators?

Brazilian law does not require that potential arbitrators have particular qualifications in order to act as arbitrators, but there are a few mandatory requirements, found in Sections 13 and 14 of the Brazilian Arbitration Act ("BAA"): arbitrators must (i) have legal capacity, (ii) be trusted by the parties, and (iii) act with impartiality, independence, competence, diligence and discreetness.

To act as an arbitrator in Brazil, one doesn't need to be a lawyer or have formal legal education. Potential candidates don't need to obtain any specific qualifications to act as an arbitrator (no licensing, certification, or specific coursework is required by law). Foreigners can act as arbitrators —in arbitral proceedings or single arbitral hearings taking place in Brazil—, without any problems, as there are no restrictions under the BAA based on nationality or citizenship.

It is obvious that arbitrators must possess some particular qualities, such as experience in particular industries or sectors, and some personal and professional skills. But the particular qualities of an arbitrator should be determined by the parties themselves, in their arbitration agreement, or by the appointing authority, if it is the case.

Is arbitration confidential in Brazil?

The Brazilian Arbitration Act contains no provision regarding the confidentiality of arbitration proceedings. Yet, some Brazilian scholars believe that there is an implicit obligation of confidentiality under Brazilian law (I believe that arbitration is private, but not necessarily confidential).

To date, Brazilian courts have not dealt with the question on whether there is an implicit obligation —or implied duty— of confidentiality in arbitration proceedings.

More certainty regarding the position of Brazilian law vis-à-vis the confidentiality of arbitration, only when a Brazilian court issues a decision regarding this matter (either endorsing or opposing the views of those scholars who believe arbitration is confidential —albeit the absence of an express provision in that regard).

Until such time, it is recommended that the parties either insert a provision of confidentiality in their arbitration agreement —or choose arbitral rules expressly providing for confidentiality— if they want guarantee that aspects of an eventual arbitration between them will be kept confidential by all the parties involved in the proceedings, during the proceedings and after the arbitral awards are issued.

Important Question re: Enforcement of Foreign Arbitral Awards in Brazil

Since in my previous posting I wrote about recognition and enforcement of foreign arbitral awards, I would like to comment about something that I have not yet seen addressed anywhere.

Brazil acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) in 2002 (The New York Convention entered into effect in Brazil pursuant to Decreto nº 4.311, de 23 de julho de 2002). Needless to say, Brazil’s accession to the New York Convention was very well received by Brazilian and foreign practitioners and scholars, for obvious reasons: it was a late —considering that the Brazilian Arbitration Act was dated September 1996, but a very important— step for the strengthening and further development of arbitration in Brazil.

The procedure for enforcement of foreign arbitral awards in Brazil is identical to the procedure for domestic awards: both are enforceable under provisions of the Brazilian Civil Procedure Code. Before becoming enforceable in Brazil, however, foreign arbitral awards must receive a leave for enforcement —known in the Brazilian legal writing as exequatur or homologação— from the Superior Tribunal de Justiça (“STJ”), which is the court with exclusive jurisdiction to confirm foreign arbitral awards.

Under Brazilian legal tradition, the application for recognition of a foreign arbitral award is a legal process that precedes enforcement, which is a distinct legal process that must be filed after the STJ has granted the exequatur to the foreign award (as per the sole paragraph of Section 34 of the Brazilian Arbitration Act, a foreign arbitral award is an award made outside the Brazilian territory). Domestic awards —those made in the Brazilian territory—, however, don't need to be previously confirmed by any court of law as, in Brazil, domestic awards are final and binding, and not subject to any leave for enforcement or registry by State Courts (Section 18 of the Brazilian Arbitration Act).

The second part of Article III of the New York Convention, which relates to discriminatory treatment between domestic and foreign arbitral awards, states that:

“There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards”.

Could the conditions for the recognition and enforcement of foreign arbitral awards in Brazil, be considered more onerous than those imposed to the enforcement of domestic awards, in view of the New York Convention's Article III?

I believe so.

The Brazilian exequatur process increases time and cost to the enforcement of foreign awards in Brazil, because such process consists of separate sessions (hearings) before the STJ, each session taking place months apart from the other. And, once the exequatur order is finally obtained, the successful party must still file an execution lawsuit to secure enforcement of the award —before the Federal Court of with jurisdiction over the place where enforcement is sought— and this is not also obtainable without further delay.

The practical problems to enforce foreign awards in Brazil, including the applicant’s need to file another procedure to secure enforcement upon the grant of exequatur from the STJ, creates significant cost and time constrains to the applicants. It takes years until a foreign arbitral award is finally enforced in Brazil, counted from the application before the STJ.

Until Brazil passes an amendment to both the Federal Constitution and the Brazilian Arbitration Act to simplify the exequatur procedure, removing the exclusive jurisdiction of the STJ to that end, the enforcement of foreign arbitral awards —and eventual collection of the defendant's assets, in Brazil— will continue to be time-consuming and costly. The recognition of the foreign arbitral award inside the enforcement process, in the same process —as used in several countries— is the best solution to Brazil.

Enforcement of unreasoned awards in Brazil: is it possible?

In my previous posting (Non-lawyers as sole arbitrators in Brazil), I mentioned that naked or unreasoned awards were against Brazilian public policy, as arbitral awards made in Brazil must necessarily be reasoned (v. Section 26, II of the Brazilian Arbitration Act) ("BAA").

What about arbitral awards made overseas? Do foreign awards need to be reasoned, in order to be validly recognized and enforced in Brazil?

The Brazilian arbitration community awaits for the decision of the Brazilian Superior Tribunal de Justiça (“STJ”) in Kanematsu USA Inc v. ATS - Advanced Telecommunications Systems do Brasil Ltda. Kanematsu is seeking to enforce in Brazil a foreign arbitral award rendered under the Commercial Arbitration Rules ("Rules") of the American Arbitration Association ("AAA"), in which Kanematsu was the succesful party.

The arbitral award rendered in favor of Kanematsu was unreasoned.R-42(b) of the Rules establishes that "[t]he arbitrator need not render a reasoned award unless the parties request such an award in writing prior to appointment of the arbitrator or unless the arbitrator determines that a reasoned award is appropriate".

ATS claimed that Kanematsu's petition for enforcement of the AAA award is a violation of public policy, in view of the provision of Section 26, II of the BAA. However, Kanematsu and ATS have not requested in writing that a reasoned award was issued by the arbitral tribunal, and, (i) if the parties themselves voluntarily agreed to arbitrate under such conditions —each using its party autonomy— and (ii) such conditions were in accordance with the lex arbitri, why shouldn't the award be recognized by the STF?

The question is whether the STJ will apply the concept of international public policy, and recognize the Triple A arbitral award in favor of Kanematsu. Brazilian practitioners will certainly welcome the application of the international public policy in Brazil, which will leave behind the old and narrow interpretation of Supremo Tribunal Federal ("STF") on public policy (Constitutional Amendment No. 45/2004, which entered into force on December 31, 2004, has transfered the jurisdiction for the exequatur of foreign arbitral awards from the STF to the STJ).

Non-lawyers as sole arbitrators in Brazil

In Brazil, arbitrators do not have to be lawyers: non-lawyers can be chosen as arbitrators under Section 13 of the Brazilian Arbitration Act ("BAA"). While experienced professionals may bring valuable expertise to the arbitral tribunal, should arbitrators who are not lawyers be appointed as sole arbitrators?

In Brazil, however, the trend is to choose —as sole arbitrators— individuals with legal training and previous experience with arbitration (non-lawyers being appointed —in practice— to three-arbitrator tribunals). This is due to several reasons, among which I will list two of the most important:

(i) naked awards are against Brazilian public policy: reasoned awards are mandatory to arbitral awards made in Brazil —as per Section 26, II of the BAA. Drafting arbitral awards in Brazil is not simple, as following Section 26 of the BAA, the award must necessarily include (a) a report of the dispute, (b) the reasons for the decision, with a proper analysis of all factual and legal issues involving the dispute, and (c) the arbitrator's decision. Lawyers are better prepared to draft the award and to deal with the formal requirements of arbitral awards;

(ii) arbitration procedure is complex (arbitration is essentially, a "legal" proceeding), where arbitrators may face complex issues, such as, for instance, one of the parties' request to the arbitral tribunal for the issuing of interim measures of protections (under Brazilian law, would that be the case for the arbitral tribunal's issuing of an "order", or the rendering of an "interim award"?) .

The amounts in dispute in arbitrations may be very high, and the issues in dispute by the parties may be very complex. This requires a lawyer as sole arbitrator, or a lawyer as one of the members of the arbitral tribunal (and serving as chairmen of the tribunal).

You can click here for a good article on this subject.

Tenth Anniversary of the Brazilian Arbitration Act

Investing in a country depends on an analysis of such country's legal rules and institutions. Investors want to know the extent of legal protections in the host-country, and, very importantly, if the host-country recognizes arbitration as an effective means of dispute resolution.

Having an arbitration-friendly legislation is one thing, but good use of such legislation is a different one.

I believe that it can be said, without any doubts, that Brazilian courts have been supportive to arbitration, specially in the last five years (after the 2001 Brazilian Supreme Court decision upholding the constitutionality of the Brazilian Arbitration Act).

To date, Brazil does not have a highly developed arbitration culture, but I believe that it is a matter of time until Brazil gets there. Until such time, however, it can only be hoped that the Brazilian Arbitration Act —dated September 23, 1996— is reviewed and modernized, or even that a new legislation is passed into law.

Protection of Confidentiality of an Arbitration in Switzerland

Confidentiality, for a long time presented as one of the advantages of international arbitration over litigation, has not been assumed to be automatically applicable since 1995, when the decision of the High Court of Australia in Esso v. Plowman was largely publicized and hotly debated (such decision was followed by the Swedish Supreme Court’s decision on Bulgarian Foreign Trade Bank v. A.L. Trade Finance, in the year 2000).

Confidentiality is still pretty much a controversial topic, and should not be taken for granted by arbitration practitioners (if you read Portuguese, you may want to read here a short newspaper article that I published last August).

Today, a Swiss practitioner has published an article about the confidentiality of Swiss Supreme Court's review of arbitral awards issued in that country. You can read the article International Law Office Website or at Mondaq (you may need to register in either Website).

Are race and culture as decisive factors when appointing an arbitrator?

The success of the arbitration rests with the arbitrator, because a good arbitration needs a good arbitrator. Arbitrators are often party-appointed. When the parties are from diverse countries, and there are significant cultural and language differences between them, should an arbitrator's nationality, race or culture be a factor when choosing the arbitrators? Should that be the most important factor?

On the other hand, if there is to be one arbitrator only —from a neutral country, to be indicated by an appointing authority—, should one party necessarily challenge the appointment of an arbitrator who speaks the same language and is closer to the other party's culture and race, than to such party's own culture and race?

I don't know the exact answer. What I do know is that I have recently had an arbitral experience, where the appointed arbitrator was from a third country, a neighboring country of the opposed party of my client. The country of such opposed party is highly influential on the arbitrator's home country, both having the same heritage. What's more, the arbitrator's mother tongue was the same language spoken at opposed party's country. Yet, the arbitrator was very fair and balanced, and both parties received equal treatment.

My team and I did not assume that just because the arbitrator had cultural similarities —same heritage and culture, and same language spoken as opposed party and their advocates— the opposed party would have an advantage over us. We analyzed the arbitrator's background, his commitment to neutrality, and thought that he could do the job. And he did it (luckily for us and our client).

Any thoughts? Please write me.

Decision on arbitrability of disputes of state-owned/controlled companies

In October 2005, the Brazilian Superior Tribunal de Justiça (“STJ”) —in AES v. CEEE— confirmed the validity and enforceability of arbitration clauses inserted in contracts involving state-owned/controlled companies. The STJ's decision was, in practical terms, a recognition of the validity of arbitration —as means of dispute resolution— arising from agreements between a private party and state-owned/controlled companies.

AES Uruguaiana and Companhia Estadual de Energia do Rio Grande do Sul – CEEE signed a power sale agreement ("Agreement"), which had an ICC arbitral clause inserted into it. A dispute arose between the parties, and CEEE resisted to resolve the dispute by ICC arbitration —as initiated by AES—, claiming to be a quasi-public corporation (sociedade de capital mixto) and, because of that —and because of reasons of national sovereignty and public policy—, it was exempted it from submitting to the jurisdiction of an ICC arbitral tribunal.

CEEE’s claims were upheld by the Courts of the State of Rio Grande do Sul, but the STJ —headquartered in Brasília—, reversed such decision. The STJ upheld the validity of the arbitral clause inserted in the Agreement, and determined that CEEE submitted to the ICC arbitral proceedings.

Two weeks ago, on September 14, 2006, the STJ finally published its decision in AES v. CEEE in Brazil's Justice Gazette (Diário da Justiça). The decision is now available for download at STJ’s website.

The published decision allows arbitration practitioners to precisely understand the scope of the decision in AES v. CEEE, the first one of the STJ on this subject-matter.

UPDATE (October, 6 2006): Today's news briefing of Global Arbitration Review presents a comment about this matter. Click here to access such comment.

Arbitrator's Values and Party Expectations

In a July 13, 2006 posting, I commented about the qualities of international arbitrators. Today, I will comment about four of the core values that parties expect that arbitrators apply, when the arbitral tribunal has to act and to come to a decision involving such parties.

Perhaps the first value that parties expect –from arbitrators– is honesty. Arbitrators must be honest, at all times, being trustworthy in all they do. Arbitrators must always act with integrity.

A second and important value is accountability. Although arbitrators have the “right to be wrong”, arbitrators must take full responsibility for their actions.

A third value parties expect from their arbitrators is fairness. Parties must be treated equally, and arbitrators must never discriminate against any of the parties to the arbitration. Fairness in the arbitration proceedings is mandatory.

A fourth value is the arbitrator’s limitation to what he (or she) has been asked to do. Any arbitrator’s jurisdiction is limited to what the parties have agreed in the arbitration clause (or submission agreement). Arbitrators, therefore, must act –and be aware– of the limits of their competence, and –in coming to their decision and award writing– they should not be tempted to work beyond that. If they do their award will be set aside, causing further problems to the prevailing party in the arbitration.

Petrobras Arbitration III (Petrobras v. Bolivia)

On September 12, 2006, Bolivia’s Ministry of Hydrocarbons issued the Resolución Ministerial No. 207/2006 (“Resolution”), which set new rules for foreign ownership of production and sale of oil and liquefied petroleum gas in Bolivia (in fact, Bolivia is expropriating and taking full control over the entire chain of production, without paying for it). The Resolution is an extension of Bolivia’s nationalization Decree of oil and gas, dated May 1, 2006.

The new conditions set forth by the Resolution have a directly effect on Petrobras, Brazil's state-controlled oil company. Petrobras, which has two refineries in Bolivia, processes about 90 percent of the Bolivia's natural gas.

No one should expect that the Brazilian Government defends Petrobras. Last May 2006, Brazilian President Luiz Inácio Lula da Silva said that he recognized Bolivia's "sovereign rights" over its own natural resources. But Petrobras is a publicly-traded company, and --as Bolivia does not intend to pay anything to Petrobras-- it should go after its compensatory rights.

Chances are, therefore, that Petrobras will be very soon initiating arbitration proceedings against Bolivia.

Confidentiality and Int'l Comm Arb

I have recently published an article regarding confidentiality and international commercial arbitration. The article was published in Correio Braziliense's Diario & Justiça, a special separate law section running every Monday on Correio Braziliense. You can click in the picture to have full access to the text, in Portuguese.

"Group of Companies" Doctrine used in Brazil for the First Time

Brazilian law limits the enforceability of an arbitration agreement to the agreement's signatory parties. Arbitration is a voluntary method of dispute resolution, where the parties surrender their constitutional right to access the court system to hear their claims. Arbitration is, therefore, a consensual matter materialized in the parties’ arbitration agreement.

The Brazilian Federal Arbitration Act (the "Act") does not expressly authorize an arbitrator or a court of law to extend the arbitral clause to a third party. Notwithstanding the lack of an express provision for third-party joinder in the Act, the 7th Chamber of the São Paulo Appellate Court (the “Court”) has recently enforced an arbitration agreement to a non-signatory party.

In a case opposing Brazilian company ANEL - EMPREENDIMENTOS, PARTICIPAÇÕES E AGROPECUÁRIA LTDA. (“Anel”) to Swedish company TRELLEBORG INDUSTRI AB (“Trelleborg”) and its Brazilian branch TRELLEBORG DO BRASIL LTDA. (“Trelleborg Brazil”), the Court extended the arbitral clause to Trelleborg, a non-signatory party of the arbitration agreement. The arbitration agreement was included in the by-laws of a company founded by Anel and Trelleborg Brazil, but the Court resolved that under the grounds that Trelleborg had played an active role in all negotiations that preceded the organization of the company with its local branch, Trelleborg should participate in the arbitration.

Trelleborg's claims that it was not a party in the agreements subject-matter of the controversy (and therefore not subject to the arbitral proceedings), have not been taken into consideration by the Court.

The "group of companies" doctrine, under which non-signatories of arbitration agreements may be bound to arbitrate and to arbitral awards, was used in Brazil for the first time by a State court. But this was certainly an exception to the principle that limits arbitral clauses to its signatories. In Anel v. Trelleborg, the Court extended the arbitral clause to Trelleborg because the Court considered that the agreement subject-matter of the controversy, was entered into between Anel, Trelleborg Brazil and its parent company Trelleborg.

Investor-State Arbitrations

As I have mentioned before, Brazil has not signed the 1965 Washington Convention. Brazil has signed about 14 Bilateral Investment Treaties, and all such Treaties establish arbitration to take place under either the ICSID or the UNCITRAL Rules. To date, however, none of these BITs have been passed into law as they haven't been ratified by the Brazilian Senate.

Undoubtedly this lack of ratification brings legal uncertainty to foreign investors in Brazil, but it doesn’t look like any of such BITs —nor the 1965 Washington Convention— will be ratified any soon.

Int'l Arbitration Conventions ratified by Brazil

Brazil is a party to: (i) the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards (New York Convention); (ii) 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention); (iii) the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards (Montevideo Convention); and (iv) the 1998 International Commercial Arbitration Agreement of MERCOSUR (Mercosur Agreement).

To date, however (and as I have previously mentioned in this Blawg), Brazil has not signed the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (Washington Convention), and therefore, Brazil is not a member of the International Center for the Settlement of Investment Disputes –ICSID.

ICSID Award against Argentina

According to the media, an arbitral tribunal under the auspices of the ICSID has recently awarded $165 million dollars in damages to Azurix Corporation, a Delaware company.

Azurix, the former water concessionaire of Buenos Aires, has sought to recover damages in excess of $565 million dollars from the Republic of Argentina.

ICSID’s caseload has registered over 30 proceedings against Argentina, following the 2001 economic crisis in that country.

Petrobras Arbitration II

The Bolivian government has been trying to force Petrobras —Brazil’s state-owned oil company— to renegotiate the prices in their gas purchase agreement. Not only has Bolivia been disregarding Petrobras contractual rights in said gas purchase agreement, it ignored Petrobras and other foreign investors privately held investments (when it “nationalized” foreign investment in Bolivia’s oil and gas fields last May 1, 2006).

This situation highlights the importance of investing in a country where investment treaty arbitration is available for the foreign investor.

Fortunately (for Petrobras), although Brazil has not acceded to the 1965 Washington Convention —which has established the ICSID - International Center for the Settlement of Investment Disputes— Bolivia and the Netherlands are signatories of the Convention. And, importantly, the foreign investment in Bolivia was made through a Dutch subsidiary company of Petrobras.

Petrobras will have fair and adequate means to obtain compensation for any losses that it may have incurred in Bolivia. This, if Petrobras decides to initiate ICSID proceedings against the Bolivian government (there are political aspects that may interfere, as Petrobras is state-controlled). If this was the case, though, it would certainly be the first investment treaty arbitration brought by a Brazilian company against a foreign state.

Click here for Bolivian's decree law that "nationalized" the Bolivian oil and gas fields

BIBLIOGRAPHY ON LATIN AMERICAN ARBITRATION

I came across this Website today: Selected Bibliography on Arbitration and Latin America. It's worth taking a look at it.

Pathological Arbitral Clauses

An international commercial arbitration begins way before the controversy of the parties. It actually begins with the drafting of an appropriate arbitral clause in the disputants' contract, or, in other words, with the drafting of a non-pathological arbitral clause (as those poorly-drafted arbitral clauses are called by international arbitration doctriners).

Last week I received a draft contract for review, and it contained a pathological arbitral clause. This reminded me of a MoU that I reviewed a few years ago. Such MoU, prepared by the counsel of the opposing party, contained an arbitration clause worded as follows:

"ARTICLE 8 - APPLICABLE LAWS AND DISPUTES

THIS Agreement shall be considered and interpreted solely in accordance with the laws of the State of Virginia and of the United Kingdom. In the event of any disputes that cannot be resolved by good faith negotiations between XXXXXXX XXXXXX and YYY, both parties agree to resolve any disputes by arbitration pursuant to the guidelines of the International Arbitration Association. Any award or remedy bestowed by an arbitration conducted in accordance with the procedures of the International Arbitration Association shall be binding on the parties hereto."


It looks to me that pathological clauses will never go away...

Petrobras Arbitration

Brazilian newspapers reported last week that Petrobras —Brazil’s state-owned oil company, the (then) major player in Bolivia’s energy market— will turn down the requests of Yacimientos Petrolíferos Fiscales Bolivianos - YPFB (Bolivian government’s oil company) to a review of prices in their gas purchase agreement. According to several sources, the gas purchase agreement contains an arbitration clause with seat of arbitration in New York City, New York.

The Bolivian government’s efforts to renegotiate its energy contracts, and this (eventual) big arbitration, are consequences of the “nationalization” of Bolivia’s oil and gas fields dated May 1, 2006.

Qualities of International Arbitrators

There is nothing new in saying that the quality of arbitration depends very much upon the quality of the arbitrators, particularly in the international arbitration setting (countless articles have been written in this regard). The qualities of the arbitral tribunal are, evidently, of great importance, and have a direct influence in the outcome of the arbitration, and in the enforceability of the arbitral award rendered by the tribunal. Being independent and impartial, however, are not “qualities”, but legal requirements of all significant international arbitration rules and arbitration-friendly legislation. Therefore, appointing parties must have a clear understanding which personal and professional characteristics should international arbitrators have.

Aside from specific qualities such as (i) the potential international arbitrator’s listening and cross-cultural communications skills, (ii) people skills, (iii) reasoning skills, and (iv) legal skills and specialized expertise/familiarity in the industry subject-matter of the arbitration, it is important to pay attention and early identify the behaviour and personality of potential arbitrator.
Trust of the parties is essential, but not a quality (at least under Brazilian law "trust" is a mandatory legal requirement, as per Section 13 of Brazilian Arbitration Act). Age does not matter, unless the potential arbitrator is too young. Nationality may be of importance, especially in the chairman-selection process.

I finalize this posting with the words of (international arbitration) practitioner Pierre A. Karrer on qualities that international arbitrators must have:

"[I]nternational arbitrator[s]... must have some basic skills, and those take a while to acquire. You need to have independence of judgment, imagination, creativity, quickness of mind, and also a good memory. Good memory for the things that you learned at home, and those that you learned in school—yes, physics, biology, chemistry, history, all the things that you thought you would never see again. And above all, languages. This is the key to everything else." PIERRE A. KARRER (So You Want to Become an Arbitrator? - A Roadmap, The Journal of World Investment and Trade, Vol. 4, No. 3, 2003, pgs.13-15)

Why?

A friend asked me: why create and maintain a Blawg dedicated to arbitration law? Well, there are a number of reasons why I started ArbitrationLaw, such as my valued interest in international arbitration. But my answer to him was: why not?

In any case, I intend to maintain this Blawg by bringing interesting questions for discussion, on various aspects of (international) arbitration law.

Onerous Conditions on Enforcement

The second part of Article III of the 1958 New York Convention, which relates to discriminatory treatment between domestic and foreign arbitral awards, states that:

“There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.”

The procedure for enforcement of foreign arbitral awards in Brazil is identical to the procedure for domestic awards (those made in the Brazilian territory): both are enforceable under provisions of the Brazilian Civil Procedure Code (Section 34 of the Brazilian Arbitration Act establishes that foreign arbitral awards are those made outside the Brazilian territory). Before becoming enforceable in Brazil, however, foreign arbitral awards must receive a leave for enforcement —known in Brazil as exequatur or "homologação"— from the Superior Tribunal de Justiça (“STJ”). Domestic arbitral awards, on the other and, are not subject to any exequatur procedure, as domestic awards are final and binding, and have the same and effect as a Brazilian court judgment (Section 18 of the Brazilian Arbitration Act).

The exequatur procedure before the STJ consists of separate hearings, and it is common that such separate hearings take place months apart from each other. One of the reasons for this long and cumbersome process is that the STJ has a remarkable backlog of cases waiting for judgment.

The application for recognition of a foreign arbitral award is a separate legal process that precedes enforcement. A foreign arbitral award is enforceable by means of a legal action filed with the local branch of the Justiça Federal (Federal Court) where enforcement is sought. Such action is separate —and subsequent— to the previous confirmation of the foreign award, which takes place physically in Brasília, capital of Brazil, where the STJ is located.

Does Brazilian law provides for a “more onerous condition” of enforcement of foreign arbitral awards, as per the language of Article III of the 1958 New York Convention? To date, the answer to this question has not been addressed by any Brazilian court of law.

Brazil, the former "Black Sheep"

On September 23, 1996, the Brazilian Arbitration Act —a piece of legislation heavily inspired in the UNCITRAL Model Law— was passed into law. Five years later, on December 12, 2001, a split 7-4 Brazilian Supreme Court decision upheld the constitutionality of the Brazilian Arbitration Act, which had been challenged ex officio by a Justice of the Brazilian Supreme Court (one Justice of the Supreme Court considered that arbitral clauses forced the parties to surrender their constitutional right to have their case heard in a court of law, and therefore, the sections of the Brazilian Arbitration Act concerning the binding nature of the arbitral clauses were unconstitutional). On June 7, 2002, Brazil finally acceded to the 1958 New York Convention, which became effective in Brazil on September 5, 2002.

The (i) passing of the Brazilian Arbitration Act, the (ii) Brazilian Supreme Court decision upholding the constitutionality of the Brazilian Arbitration Act, and (iii) the entering into effect in Brazil of the New York Convention, all together, have changed the long-established foreign views of Brazil as the “black sheep” of Latin America in its approach to arbitration. Such three changes have made international arbitration practice become possible in Brazil (although much has to be done until Brazil becomes an attractive venue for international arbitration).

To date, there are several law review articles on this subject have been written recently in Brazil and two law reviews exclusively related to arbitration. Presently, the shelves of Brazilian law bookstores carry out several books on the subject of international commercial arbitration. As for arbitration-related court decisions —whether they refer to decisions on exequatur of foreign arbitral awards, enforcement of arbitration clauses in international contracts, joinder of third parties, or other issues—, they have become more usual to find in Brazilian jurisprudence.

As there is little information on Brazilian arbitration available in the English language, this blawg is my contribution to revert this situation (an exception must be made to Arbitration Law of Brazil: Practice and Procedure, recently published in the US).

Fist Posting

This is the first posting of ArbitrationLaw. The purpose of this Blawg is twofold: to discuss topics related to international commercial arbitration; and to share information of interest for foreign practitioners on Brazilian arbitration law, in the English language.