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Request for consolidation of parallel arbitral proceedings led to improper intervention by the courts
Practical Law Legal Update 6-503-8194 (Approx. 3 pages)
Request for consolidation of parallel arbitral proceedings led to improper intervention by the courts
| Published on 04 Nov 2010 • Brazil |
Eduardo Damião Gonçalves (Partner) and Flavia Foz Mange (Associate), Mattos Filho Advogados
In a decision dated 23 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.
Background
Law No. 9307/96 (Brazilian Arbitration Act) contains the following relevant provisions:
- Article 8 recognises the kompetenz-kompetenz principle, providing that the arbitrator shall rule on its own jurisdiction.
- Article 19 provides that the arbitration will be formally instituted when the sole arbitrator or all arbitrators have accepted their appointment.
- Article 20 provides that a party wishing to raise issues as to the invalidity, nullity or ineffectiveness of the arbitration agreement must do so at the first possible opportunity after the commencement of the arbitration.
- Article 21 provides that arbitral proceedings will be governed by the rules chosen by the parties in the arbitration agreement and, if the arbitration agreement is silent, the rules of procedure will be determined by the arbitral tribunal.
Article 103 of the Civil Procedure Code provides that two or more lawsuits are deemed to be related when they present a match of objects or claimed subject matters.
Article 105 of the Civil Procedure Code provides that the judge may, at the request of a party or of his own motion, order the consolidation of separate but related lawsuits to be heard together and subject to one judgment.
Facts
The dispute involves two consortia formed to develop an energy project. Three different arbitral proceedings were filed before the same arbitral institution - the Conciliation and Arbitration Chamber of the Getulio Vargas Foundation (FGV Arbitration Chamber).
Consórcio Empreendedor Corumbá III (Coumbá) requested that the FGV Arbitration Chamber consolidate all three proceedings. Consórcio Centro-Oeste (Centro-Oeste) was opposed to the consolidation of the arbitral proceedings. The executive director of the FGV Arbitration Chamber denied the request to consolidate and moved forward with the appointment of arbitrators for the three independent arbitral tribunals.
However, before all tribunals were formally constituted, Corumbá filed a motion before the Lower Court of Rio de Janeiro seeking the consolidation of the three arbitrations. Corumbá alleged a possible harm if conflicting awards were issued by separate arbitral tribunals since all three arbitrations arise out of almost the same issues.
Decision
The court issued a preliminary injunction granting the suspension of all arbitral proceedings pending its decision regarding consolidation. The court recognised the parties' intention to resolve their dispute through arbitration without the intervention of the judiciary. However, the judge noted that the arbitral tribunal was not yet constituted and therefore Corumbá's only option was to seek the court's assistance regarding the consolidation of proceedings. Although Corumbá had previously, and unsuccessfully, filed a request for consolidation before the FGV Arbitration Chamber, the judge analysed the decision rendered by the executive-secretary of the institution and concluded that it did not have authority to rule on the issue.
The court ordered the preliminary suspension of the arbitral proceedings inferring that consolidation would be possible without practical difficulties to the parties. Moreover, the judge stated that the suspension of the proceedings at this stage would be cost-effective, since the constitution of the three separate arbitral tribunals could end up resulting in worthless expenses. Therefore, the judge granted the suspension of the arbitral proceedings pending its decision on whether or not the arbitrations should be consolidated.
Comment
Despite Article 8 of Law No 9307/96, the court disregarded the kompetenz-kompetenz principle which sets forth that the arbitral tribunal has competence to rule on its own jurisdiction.
By ordering the suspension of the arbitral proceedings, the appointment of arbitrators is currently obstructed by the court order. Hence, the arbitral tribunals will lose the opportunity to decide on the proceedings' consolidation, thereby being prevented from ruling on its own jurisdiction.