Tuesday, August 15, 2006

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.

Saturday, August 12, 2006

"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.