In the case SEC N. º 831, dated March 2010, an extraordinary appeal based on constitutional grounds against a judgment recognising a foreign arbitral award reached the Brazilian Supreme Court (Supreme Court) (see Legal update, Appeal against a decision on recognition and enforcement of a foreign arbitral award on constitutional grounds).

The Superior Court confirmed the recognition of an ICC award in favour of the claimant and the respondent (a Brazilian company) then filed requests for clarification, which were all denied. The respondent then filed an extraordinary appeal to the Supreme Court alleging constitutional violations.

The Supreme Court decided that the extraordinary appeal was not admissible. It held that the appeal did not fulfill the procedural admissibility requirements, in that constitutional violations had not been raised before the Superior Court, and the Superior Court had not addressed such matters. Furthermore, enforcement would not violate the Constitution, as alleged by the appellant.

Although one might say that the admissibility of the extraordinary appeal on constitutional grounds by the Superior Court somehow tarnishes the Brazilian image before the international community as a leading place to enforce foreign awards, the authors' view is that this is definitely not the case. The fact that the Supreme Court firmly denied the appellant's claims regarding the constitutional violations shows that, in most cases, it will be very difficult to avoid enforcement by means of an extraordinary appeal on constitutional grounds.

Ultimately, the decision indicates an enhancement of the Brazilian high courts' understanding towards the institution of international arbitration. The Supreme Court has shown that the Superior Court's decisions on recognition of foreign arbitral awards are most likely to remain the final word on the subject, and award debtors are unlikely to be able to seek an extraordinary appeal procedure as a means of evading enforcement.

In 2010 there were two similar decisions from the Brazilian Superior Labour Court (TST) that may have created a legal trend on the inarbitrability of individual labour disputes.

In the case TST-RR-79500-61.2006.5.05.0028, Xerox Comércio e Indústria LTDA ("Xerox") v Mário de Castro Guimarães Neto ("Guimarães"), dated March 2010 (see Legal update, Arbitrability of labour disputes in Brazil), a distinction was drawn between collective and individual labour disputes in the context of arbitration. The TST found that an arbitral tribunal lacked jurisdiction to decide upon the rescission of a labour contract in an individual labour dispute, on the ground that it was not arbitrable.

According to the court, individual labour rights did not fall within the definition of Article 1 of Law 9,307/96, which limits the use of arbitration to disputes involving "freely transferable patrimonial rights". Notwithstanding, the court also highlighted that the same is not true for collective labour disputes, whose arbitrability is constitutionally guaranteed by Article 14(2) of the Brazilian Constitution, which expressly provides that parties can submit collective labour disputes to arbitration.

The case TST-RR-94200-84.2003.5.10.0003, Espólio de Rogério Tristão Rodrigues v União (PGU) and Organização das Nações Unidas (ONU) / Programa das Nações Unidas para o Desenvolvimento (PNUD) was another decision by the TST, which recognised the inarbitrability of individual labour disputes on the grounds of the workers' untransferable rights (see Legal update, Brazilian court disregards the United Nation's immunity from jurisdiction and prevents labour dispute from being settled by arbitration). The TST overruled a lower court decision, which recognised the UN's immunity from jurisdiction and the arbitrability of disputes arising out of a labour contract, on the ground that individual labour disputes can only be settled by the judiciary.

The TST did not ignore the fact that a treaty providing immunity from jurisdiction to the UN and its agencies was adopted by the Brazilian legislation (Convention on the Privileges and Immunities of the United Nations of 1946). However, it found that, despite all UN privileges, an arbitration clause inserted into a labour contract is invalid due to the non-arbitrable nature of individual labour rights.

In TJSP N. 990.10.090526-0 Back Serviços Especializados Ltda. ("Back") v Unibanco União de Bancos Brasileiros S/A. (Unibanco), the São Paulo State Court of Appeals (TJSP) rendered a decision recognising the negative effect of an arbitration agreement regardless of its alleged pathological character (see Legal update, São Paulo's Court of Appeal on pathological arbitration agreements).

The TJSP stressed that when the parties commit to an arbitration agreement their foremost intent is to declare the State court incompetent to rule over the dispute. So, even in the case of a "pathological arbitration clause", where the agreement contains a defect able to disrupt the conduct of the arbitral proceedings, the parties' intent to arbitrate their disputes shall prevail.

The TJSP declared itself incompetent to entertain the dispute. It referred the case to the arbitral tribunal on the grounds that when dealing with pathological or blank clauses, the State courts should maintain the parties' will to engage into arbitration when it is possible to remedy the clause's defect.

According to the TJSP, the arbitration agreement's failure to provide for a method for the appointment of the arbitral tribunal was curable by way of the procedure set out in Article 7 of Law No. 9,307/96.

This decision clearly demonstrates the Brazilian courts' support for arbitration since it recognises that even if an arbitration clause does not set forth the procedural rules that will govern the arbitration, and is deemed to be "blank", the institution of the arbitration is not prevented.

The final judgment in Companhia do Metropolitano de Sao Paulo v Tribunal Arbitral do Procedimento No. 15.283/JRF da Corte Internacional de arbitragem da Câmara Internacional de Comercio on the request for annulment of the arbitral tribunal's decision is expected in 2011. The final decision from the São Paulo State Court of Appeals (TJSP) on the effects of the preliminary injunction, granting the production of an engineering expert opinion, is also expected this year.

One of the most controversial decisions of 2010 concerned the intervention of the judiciary in the ongoing arbitration proceeding between the "Companhia do Metropolitano de São Paulo" (Metrô) and the consortium "Via Amarela" (CVA) (see Legal update, Brazilian court's controversial injunction interfering in arbitration is suspended by the Court of Appeals).

The case dealt with a request made by Metrô before a first instance São Paulo State court to review an arbitral tribunal's decision rejecting its request for production of additional engineering evidence. By means of a writ of mandamus (Mandado de Segurança), the Metrô pursued the annulment of the arbitral tribunal's decision that ordered the liquidation of its debt by forensic accounting, rather than by engineering evidence.

The first instance court issued a preliminary order determining the production of an engineering expert opinion while the merits of the writ remained, pending decision. CVA then appealed the decision before the TJSP and requested a preliminary order suspending the effects of the first instance court's order. The TJSP rendered a preliminary judgment, granting the suspension.

An interlocutory decision regarding the writ of mandamus was rendered in September 2010 that made the dispute even more contentious (Lawsuit n. 053.10.017261-2). Instead of dealing with Metrô's request for the annulment of the arbitral tribunal's decision, the first instance court questioned the validity of the arbitration agreement and sent the case to be evaluated by the Public Ministry.

Although the court underlined its incompetence to rule over this issue at that stage, it urged the need to reconsider the validity of the ongoing arbitration on the grounds that the issue in dispute before the arbitral tribunal concerned the public interest (construction of a subway line in the city of São Paulo). In the judge's reasoning, the Metrô was deemed to be a State owned company that benefits from indisposable rights that cannot be arbitrated.

Hence, the final judgment on the request for annulment of the arbitral tribunal's decision is expected to be rendered in 2011. Similarly, the final decision from the Court of Appeals on the effects of the preliminary injunction granting the production of the engineering expert opinion is also expected for this year.

It is worth noting that the writ of mandamus is not the proper legal instrument to overrule an arbitral decision, let alone to request for setting aside an award. Therefore, the effects of a decision granting such interference from the judiciary on the arbitral decisions may not only damage the institution of arbitration, but also the Brazilian legal system.

A decision in the case Consórcio Empreendedor Corumbá III v Consórcio Construtor Centro-Oeste and others on the consolidation of proceedings and preliminary injunctions is expected to be delivered in 2011.

In September 2010, the Lower Court of Rio de Janeiro granted a preliminary injunction to suspend three related arbitral proceedings pending its judgment in respect of a request for their consolidation before the same arbitral tribunal (see Legal update, Request for consolidation of parallel arbitral proceedings led to improper intervention by the courts).

In this case, the claimant sought before the court the consolidation of three arbitral proceedings on grounds that the issuance of conflicting awards by separate arbitral tribunals could harm the parties. The respondent, however, was opposed to the consolidation of the arbitral proceedings.

Before deciding on the consolidation, the court granted a preliminary suspension of the arbitral proceedings on the grounds that to carry on with the arbitrators' appointment to independent arbitral tribunals (before the final decision on the consolidation) could end up resulting in worthless expenses.

The respondent appealed against this decision before the Rio de Janeiro State Court of Appeals (Lawsuit n. 0066628-20.2010.8.19.0000).

The main concern of arbitral practitioners regarding such intervention in arbitral proceedings is that it may set a precedent for the courts to violate the arbitral tribunal's competence to rule on its own jurisdiction.

It is generally expected that the Rio de Janeiro State Court of Appeals will overrule the decision granting the preliminary injunction in order to allow the arbitral tribunals to be constituted and finally decide on the consolidation of the proceedings.

Apart from the kompetenz-kompetenz principle, we must also take into consideration the autonomy of the parties regarding the appointment of arbitrators. Unlike judicial proceedings, in arbitration the parties are free to appoint their arbitrators by matching the arbitrator's personal skills and knowledge with the specificity of the subject matter. This is true even in parallel arbitrations which usually involve the same legal and factual issues.

Although some practical aspects may weigh in favour of a single consolidated proceeding (such as cost, expediency, and the avoidance of inconsistent results), there might be cases where the parties purposely appoint different arbitrators to constitute independent arbitral tribunals.

Regardless of the inefficiencies associated with multiple arbitrations, the decision on the consolidation of proceedings shall always derive from an agreement between parties and arbitrators, and not ordered by the judiciary.

The final decision on the setting aside of a partial award granted by a former Permanent Court of Arbitration (PCA) judge is expected in 2011.

In March 2010, the former PCA judge and former Justice of the Brazilian Supreme Court resigned as the chairman of an arbitral tribunal after having his impartiality challenged by parties involved in the proceeding.

Please note: Judicial proceedings for annulling the arbitral awards are held in camera. Therefore, the information provided in this commentary is based on details published in the press.

The underlining arbitration has been under the public spotlight as it concerned a corporate dispute related to the shareholding of the Brazilian company VALE, the second largest mining company in the world. The claimant in the arbitration, Elétron, is a company controlled by Grupo Opportunity, which is headed by Daniel Dantas, a controversial Brazilian banker.

The case was widely reported by the media when the chairman of the arbitral tribunal, former PCA Member Francisco Rezek, had his impartiality challenged. After rendering a partial award in favour of Elétron, the arbitral tribunal found that the chairman of the tribunal had previously served as counsel for Dantas. This had not been disclosed by the chairman to the parties. The chairman had answered "no" when asked by the arbitration chamber's questionnaire about the existence of any previous legal service on behalf of the parties involved in the arbitration.

The chairman argued that a firm which he had previously worked for, had provided to Dantas with a legal opinion in a judicial proceeding held in Italy, and that he had disclosed this information to the parties in a conference call.

The chairman resigned and the respondents promptly filed a lawsuit to set aside the partial award in Elétron's favour.