Tuesday, September 26, 2006

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.

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