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Brazilian court overturns highly criticised decision on arbitration clauses
Practical Law UK Legal Update 9-517-7046 (Approx. 3 pages)
Brazilian court overturns highly criticised decision on arbitration clauses
by Practical Law
| Published on 02 Feb 2012 • Brazil |
Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate), Diego Nocetti (Associate), Mattos Filho Advogados
In a long-awaited decision dated 7 December 2011, the Court of Appeals of the State of Paraná (TJPR) overturned one of the most criticised arbitration-related court decisions in Brazil, according to which the execution of a submission agreement was a necessary step before initiating arbitral proceedings, even when the parties had entered into a valid arbitration clause and had participated in ICC proceedings without objecting to the tribunal’s jurisdiction.
Background
Article 3 of Law No. 9.307/96 provides that:
"The parties may submit their disputes to arbitration by means of an arbitration agreement, which may be either an arbitration clause or a submission agreement."
Article 4 of Law No. 9.307/96 provides that:
"An arbitration clause is an agreement by means of which the parties to a contract undertake to submit the disputes which may arise regarding that contract to arbitration."
Article 5 of Law No. 9.307/96 provides that:
"If the parties, by means of the arbitration clause, refer to the rules of an arbitral institution or specialised entity, arbitration shall be initiated and conducted according to such rules; the parties may also establish in the arbitration clause itself, or in a separate document, the agreed procedure for initiating arbitral proceedings."
Article 9 of Law No. 9.307/96 provides that:
"The submission agreement is the agreement by means of which the parties submit a dispute to arbitration by one or more persons; such agreement may be either judicial or extrajudicial."
Facts
Itiquira Energética SA (Itiquira) executed a contract with Inepar SA Indústria e Construções (Inepar) for the construction of a power plant in Mato Grosso. However, because of several construction delays Itiquira terminated the agreement. A conflict arose between the parties and in June 2002, Inepar filed a Request for Arbitration with the ICC. During the proceedings, neither party presented an objection regarding any irregularity.
Itiquira obtained a favourable arbitral award and subsequently requested its enforcement before a Brazilian court. However, Inepar simultaneously requested the setting aside of the award and opposed its enforcement on the ground that the parties had never executed a submission agreement, but merely an arbitration clause. The lower court judge denied Inepar's requests, acknowledging the validity of the arbitral award. Inepar filed an appeal, which was granted by a majority decision of a 3-judge panel of the TJPR.
Itiquira filed an appeal with the TJPR itself.
Decision
In its second decision, the TJPR overturned its former one, holding that in order to choose arbitration and thereby waive state jurisdiction, the parties may freely choose between executing an arbitration clause or a submission agreement, as both are equally valid as an arbitration agreement. In this case, the parties had entered into an arbitration clause which perfectly established how arbitration would be initiated by referring to the ICC Rules. Therefore, the execution of a submission agreement is not mandatory and is not necessary for the arbitral proceedings and the arbitral award to be valid.