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International arbitration in "onerous assignment" contracts with Petrobras
Practical Law UK Legal Update Case Report 9-503-2124 (Approx. 4 pages)
International arbitration in "onerous assignment" contracts with Petrobras
by Practical Law
| Published on 01 Sep 2010 • Brazil |
Valeria Galíndez (Partner) and Ana Gerdau de Borja (Associate), Barretto Ferreira, Kujawski, Brancher and Gonçalves (BKBG)
In a decision of 6 August 2010, the Brazilian Solicitor General, Luís Inácio Lucena Adams, agreed with the Opinion No. AGU/AG-12/2010 issued by the Office of the Brazilian Solicitor-General (AGU Opinion) with respect to the use of arbitration in disputes arising out of specific contracts governed by Law 12,276 of 30 June 2010 (Law 12,276), under which exploration rights in pre-salt reservoirs can be assigned to Petrobras. The AGU Opinion considered that it was inappropriate to provide for international arbitration in these contracts, which are concluded between the federal government, Petrobras (a mixed-capital company) and the Oil, Natural Gas and Biofuel National Agency (ANP).
Background
Law 12,276 contains the following relevant provisions:
Article 1:
"The Union [the federal government] is authorised to onerously assign to Petróleo Brasileiro S.A. – PETROBRAS, without the need to bid, the right to research and extract oil, natural gas and other hydrocarbon fluids, as provided for in Article 177(I) of the Federal Constitution, in areas not subject to concession contracts, located in pre-salt reservoirs.
1. Petrobras shall be entitled to the oil, natural gas and other hydrocarbon fluids, produced according to the terms of the assignment contract, as set out in the chapeau.
(...)
3. Payment by Petrobras for the assignment price shall be made preferably through federal government bonds (...)"
Article 9:
"The Union is authorised to subscribe for and pay in Petrobras' shares with federal government bonds. (...)"
Article 43 of Law 6,378 of 6 August 1997 provides:
"The concession contract shall precisely reproduce the conditions of the bid announcement and of the winning bid and have the following essential provisions: (…)
X – rules on the settlement of disputes, related to the contract and its performance, including conciliation and international arbitration; (…)"
Article 11 of Law 11,079 of 30 December 2004 provides:
"The announcement shall contain a draft of the contract (...) which can provide for:
(...)
III – the use of private mechanisms for the settlement of disputes, including arbitration, provided that its seat is in Brazil and that it is conducted in Portuguese, according to Law 9,307 of 23 September 1996 (...)"
Article 3 of the AGU Portaria 1,281 of 27 September 2007 provides that:
"The following authorities may present the request [for conciliation]:
I – State ministers;
II – heads of entities pertaining to the indirect federal administration;
III – the Union's Solicitor General, the Solicitor General for Tax Matters, the Federal Solicitor General and the General-Secretaries for Litigation and Consulting."
Facts
The contracts governed by Law 12,276, the so-called cessão onerosa or "onerous assignment" contracts, concern the federal government's assignment of exploration rights to Petrobras of pre-salt reservoirs, without the need to bid, in return for federal government bonds (Article 1, chapeau, and Article 1(3) of Law 12,276). In turn, the federal government can use such bonds to subscribe for and pay in Petrobras' shares (Article 9 of Law 12,276).
Decision
The AGU Opinion considers that international arbitration is not a suitable method for the settlement of disputes arising from "onerous assignment" contracts, because:
- "Onerous assignment" contracts concern federal internal matters, such as the capitalisation of Petrobras, Brazilian public interest, sovereignty and national security.
- Authorisation to arbitrate matters arising from "onerous assignment" contracts has to be provided by law.
- The federal government, Petrobras and ANP are not used to submitting their internal disputes to international arbitration.
- AGU Portaria 1,281 provides for fast and efficient alternative dispute resolution methods, which are applicable to disputes arising from these contracts.
- The federal government (controlling shareholder of Petrobras) and Petrobras normally solve their disputes internally or, as the case may be, before state courts.
With respect to the point that arbitration has to be authorised by law, the AGU Opinion refers to Article 43(X) of Law 9,478, which expressly provides for international arbitration in concession contracts for the exploration of oil. Accordingly, were the legislature to allow for arbitration in "onerous assignment" contracts, in the AGU's view, it should have done it expressly.
Comment
According to the AGU Opinion, the request for the Opinion was whether a jurisdiction clause providing for international arbitration in "onerous assignment" contracts was appropriate or not. Hence, the AGU Opinion did not address whether domestic arbitration was an option in the case of these contracts. For instance, Law 11,079 on public-partnership contracts expressly provides for arbitration to be conducted in Brazil and in Portuguese (Article 11(III) of Law 11,709) and has been criticised. In any event, it is clear that the AGU Opinion's statement according to which "international" arbitration does not suit contracts which involve internal matters is politically motivated.
While recognising that Petrobras has minority shareholders which are not state-owned, the AGU Opinion fails to address the question whether it would not be in their interest to submit disputes founded upon the "onerous assignment" contracts to international arbitration. Furthermore, the AGU Opinion overlooks that:
- Petrobrás does not have standing alone to commence AGU conciliation proceedings, according to Article 3 of AGU Portaria 1,281.
- AGU Portaria 1,281 sets out rules on conciliation and arbitramento or "proceedings for the determination of amounts due", that is, it does not provide for arbitration within the meaning of Law 9,307 of 23 September 1996 (Brazilian Arbitration Law).
On the other hand, the AGU Opinion admits that the decision by the Brazilian Superior Court of Justice in Agravo Regimental no Mandado de Segurança No. 11,308 União v TMC Terminal Multimodal de Cora Grande Spe S.A. (TMC) recognised the validity of arbitration agreements set out in contracts to which mixed-capital companies were parties. In that case, the contract concluded between Nuclebrás Equipamentos Pesados S.A. (NUCLEP), a mixed-capital company such as Petrobras, and TMC contained an arbitration agreement. Moreover, the AGU Opinion recognises the advantages of arbitration. Yet, it shows certain reluctance to the use of arbitration by the federal administration.
Finally, it is worth noting that the AGU Opinion is yet to be approved by the Brazilian President. Approval by the President and subsequent publication in the official journal are conditions for the AGU Opinion to become binding upon the federal administration.