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.