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Brazilian Federal Public Attorney's Office takes position on the application of the New York Convention
Practical Law UK Legal Update Case Report 5-523-2441 (Approx. 5 pages)
Brazilian Federal Public Attorney's Office takes position on the application of the New York Convention
by Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate), Douglas Alexander Cordeiro (Associate), Mattos Filho Advogados
| Published on 20 Dec 2012 • Brazil |
In a formal consultation requested by the Brazilian Superior Court of Justice (STJ), the Brazilian Federal Attorney’s Office expressed the view that Article V.1(e) of the New York Convention, read in conjunction with Article 38, VI of the Brazilian Arbitration Act, prevents the STJ from recognising or enforcing arbitration awards that have been set aside at the seat of the arbitration.
Background
The Brazilian Federal Attorney's Office (MPF), a Brazilian body of independent public prosecutors and attorneys on the federal level, operates independently from the three other branches of the Brazilian government. According to Article 64 of the Superior Court of Justice (STJ) Internal Rules of Procedure, the MPF may be consulted with regard to complex matters.
The STJ is the court responsible for analysing requests for recognition of foreign arbitral awards and granting exequatur.
The New York Convention provides:
Article V
"1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(…)
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made."
Law n. 9.307/97 (Brazilian Arbitration Act) provides as follows:
Article 38
"The request for recognition or enforcement of an arbitral award may be denied only if the defendant furnishes proof that:
(…)
VI – the arbitral award has not yet become binding on the parties or has been set aside or suspended by a Court of the country in which the arbitral award has been rendered."
The Protocol for Jurisdictional Cooperation and Assistance on Civil, Commercial, Labour, and Administrative Matters (Las Leñas Protocol) provides that:
Article 20
"The arbitral decisions and awards which are referred in the previous article will have extraterritorial effectiveness inside the State members if the following conditions are fulfilled:
(…)
e. the decision has claim preclusion and/or enforceability in the country where it was pronounced;"
Article 5
"1. The recognition and execution of the decision may be refused, at the request of the party against which it is made, only if such party is able to prove to the competent authority of the State in which recognition and execution are requested:
(…)
e. That the decision is not yet binding on the parties or has been annulled or suspended by a competent authority of the State in which, or according to the law of which, the decision has been made."
Facts
EDF International SA (EDFI) initiated ICC arbitration proceedings, seated in Buenos Aires, against Endesa Latinoamerica SA (Endesa) and YPF SA (YPF) with regard to a Stock Purchase Agreement (SPA). The SPA related to shares owned by Endesa and Astra (a company incorporated by YPF) in two companies, the EmpresaDistribuidora y ComercializadoraNorte S/A and the Eletricidad Argentina S/A. EDFI invoked its right under the SPA, to review the share price when the Argentinian Central Bank terminated the parity exchange rate between the US dollar and the Argentinian peso.
The ICC tribunal rendered its arbitral award partially upholding EDFI's claims. EDFI filed an action seeking partial annulment of the award before the Buenos Aires Commercial Court of Appeal. On 9 December 2010, the Buenos Aires court set aside the award. On 7 June 2011, EDFI filed a request for enforcement of the arbitral award before the STJ.
YPF and Endesa argued that the award had been set aside and that the Buenos Aires Commercial Court of Appeal decision annulling the award constituted res judicata. Additionally, it argued that an arbitral award, set aside at the seat of the arbitration, should not be enforced in Brazil by reason of :
- Article V.1(e) of the New York Convention.
- Article 38 VI of the Brazilian Arbitration Act.
- Article 51(e) of the Panama Convention.
YPF and Endesa also referred to the fact that the United States, Spain and Chile had not enforced the arbitral award.
EDFI argued that the decision to set aside the award in Argentina was not binding on other states. Moreover, it submitted that the use of the word "may" in the New York Convention, the Brazilian Arbitration Act and the Panama Convention conferred a discretion to refuse to enforce. Therefore, EDFI argued that there should be no bar to a state recognising and enforcing an arbitral award that has been set aside at the seat of the arbitration. The enforcement should only be refused if the award violated Brazilian public policy.
The STJ requested the MPF to opine as to whether or not the award should be enforced.
Decision
MPF Opinion
The MPF concluded that the STJ could not recognise an arbitral award set aside by the courts where the arbitration had its seat, because it was no longer enforceable in the country where it had been rendered.
The MPF considered the use of the verb "may" in Article V.1(e) of the New York Convention and in Article 38, VI of the Brazilian Arbitration Act and concluded that it was used in a legal context and therefore established an obligation, as provided by the French version of the Convention. Apart from the grammatical divergences, the MPF also pointed out that international case law also suggests that enforcement requests will be denied if the award is set aside in the seat of the arbitration.
The MPF further stressed that Brazil and Argentina are founding members of the MERCOSUL Agreement on International Commercial Arbitration of 1998 and are party to the Las Leñas Protocol 1992, which establishes specific rules on the recognition of foreign arbitral awards (Article 20(e) of the Las Leñas Protocol provides that arbitral awards will have extra-territorial effectiveness in the member states only if they are enforceable and constitute res judicata in the country where they were rendered).
In this particular case, the parties had agreed that Argentinian law applied to the contract, and that Buenos Aires was the seat of arbitration. Therefore, there were no grounds to refuse to accept the judicial review made by the Argentinian Commercial Court of Appeal. Furthermore, the MPF noted that the award did not constitute res judicata as it was set aside in Argentina, the seat of the arbitration. Therefore, it did not satisfy Article 5, III of STJ's Resolution nº 09/2005 (which requires evidence of res judicata as a necessary element for recognition of foreign awards.)
As a result, the MPF stated that in Brazil, Article V.1(e) of the New York Convention and Article 38, VI of the Brazilian Arbitration Act, mean that an arbitral award cannot be recognised or enforced when the responding party demonstrates that the award has been set aside at the seat of arbitration.
Comment
The recognition and enforcement of arbitration awards that have been set aside by the national courts at the seat of the arbitration is an on-going debate that has been discussed by scholars for decades, giving rise to different opinions and theories. The STJ has not yet ruled on this matte,r but the MPF's opinion sheds light on what is to be expected under the application of the New York Convention in Brazil.
It appears that the position taken by the vast majority of courts in the states which are party to the New York Convention, which is to refuse the recognition and enforcement where the awards have been set aside in the seat of arbitration, will be followed by the STJ. In this sense, MPF's opinion is considered to be a significant contribution to the development of Brazilian caselaw on this area.