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Brazilian Supreme Federal Court upholds decision against "judicial" arbitral institutions
Practical Law UK Legal Update 6-510-7149 (Approx. 3 pages)
Brazilian Supreme Federal Court upholds decision against "judicial" arbitral institutions
by Practical Law
| Published on 03 Nov 2011 • Brazil |
Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate) and Diego Nocetti (Associate), Mattos Filho Advogados
In a preliminary decision rendered on 13 October 2011, the Brazilian Supreme Federal Court (STF) re-affirmed that Judicial Decree No. 779/2009 was invalid. The Decree was issued by the Court of Appeals of Goiás (TJGO), as had already been acknowledged by Brazil’s National Council of Justice (CNJ). The Decree created partnerships between the TJGO and professional associations for the establishment of arbitration "courts", which were to be monitored by the TJGO.
Background
The following legislation is discussed in this update:
- Judicial Decree No. 779/2009 (TJGO).
- The Brazilian Arbitration Act 1996 (Law No. 9307/1996).
- Law No. 11079/2004, which governs joint-venture agreements between direct or indirect public administration entities and privately-owned companies (PPP).
Facts
In 1997, the TJGO issued Judicial Decree No. 070/1997, which created arbitration "courts" in the State of Goiás. However, the CNJ, the body responsible for overseeing and regulating judicial activity in Brazil, decided that this Decree was invalid. To justify its decision, the CNJ argued that the TJGO was misusing arbitration and that public jurisdiction must not be merged with other dispute resolution mechanisms.
The TJGO, years later, then decided to issue Judicial Decree No. 779/2009. The Decree reinstated that arbitration "courts" were to be monitored by the TJGO and only differed slightly from what Decree No. 070/1997 provided, before it was declared invalid. The only difference between the Decrees was that the later one (No. 779/2009) was based on Law No. 11079/2004, which governs joint-venture agreements between direct or indirect public administration entities and privately-owned companies (PPP).
Despite being based on different statutory provisions, Judicial Decree No. 779/2009 was declared invalid by the CNJ on the following grounds:
- Overlap between public and private jurisdictions.
- Undue application of the Brazilian Arbitration Act, as there must be no intervention of the judiciary in arbitration procedures.
In light of the CNJ's decision, the TJGO pleaded for a writ of mandamus before the STF in order to overturn the decision. The TJGO also requested preliminary relief, so as to suspend the effects of CNJ's decision and keep Judicial Decree No. 779/2009 in force.
Decision
Justice Joaquim Barbosa of the STF preliminarily upheld CNJ's decision, re-affirming that Judicial Decree No. 779/2009 was invalid.
Justice Barbosa held that the link between the judiciary and the arbitration "courts" created by the Decree had an inherent ambiguity that could mislead the population into concluding that the arbitration "courts" are an internal structure of the TJGO.
Justice Barbosa also raised the argument that a potential PPP between TJGO and private arbitration associations, used by the TJGO to justify the legality of its Decree, does not correspond with the principles and objectives of Law No. 11.079/2004.
Comment
By voluntarily choosing arbitration as a dispute resolution mechanism, a party seeks to settle a dispute away from the courts and the judiciary. In light of that, any connection between the TJGO and the arbitration courts created by the Decree, mainly when the former monitors the latter, violates parties' autonomy and creates a mix-up of different and irreconcilable spheres, which are not provided for by the Brazilian Arbitration Act.
The STF has reaffirmed the purpose and function of arbitration in Brazil, by casting aside a controversial Judicial Decree and thereby discouraging the creation of illegal rules on the subject.