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.