Enforcement of Foreign Arbitral Awards in Brazil
The use of both domestic and international arbitration in Brazil has grown substantially in the last 10 years. Notoriously, before the Brazilian Arbitration Law (BAL) entered into force in 1996, the legal framework was one of the main obstacles to the development of arbitration in Brazil. Since then, many factors have contributed to the creation of a safe environment for the use of arbitration, including the recognition that the BAL does not violate the Brazilian Constitution; the ratification of the New York Convention; and a considerable number of court precedents supporting arbitration.1
One of these factors is the shifting of competence from the Supreme Court (Constitutional court) to the Superior Tribunal of Justice to examine the requests for homologation of foreign arbitral awards and, thus, to grant exequatur to these awards.
The BAL distinguishes domestic and foreign arbitral awards. According to article 34 of the BAL, foreign awards are the ones issued outside Brazil, regardless of the place of the seat of arbitration.
Like foreign court orders, a foreign arbitral award can only produce effects in Brazil after homologation by the Brazilian judiciary.2 The Supreme Court had competence to rule on homologation requests, granting or denying exequatur to foreign orders and awards, until December 2004, when the Brazilian Constitution was amended and competence for ruling on homologation of foreign orders and awards shifted to the Superior Tribunal of Justice.3
This shift was part of a reform of the judiciary that aimed, inter alia, at concentrating the activities of the Supreme Court on the analysis of Constitutional matters. However, this change has had substantial effects on the homologation of foreign arbitral awards, not only because of some changes put into practice by the Superior Tribunal of Justice between 2005 and the present, but also because of some of the precedents already established by this Tribunal.
Homologation of foreign arbitral awards
Articles 38 and 39 of the BAL establish the circumstances under which the request for homologation of a foreign arbitral award may be denied. When the BAL entered in force in 1996, Brazil had not yet ratified the New York Convention; this only took place in 2001. However, the legislature used the text of the New York Convention as the basis for drafting these two provisions, which, in the end, basically provide that the homologation of foreign arbitral awards may be denied in Brazil in the same circumstances as the ones provided in article V of the New York Convention.
Except under those circumstances, if the party meets some formal requirements set forth in Resolution No. 9/2004 of the Superior Tribunal of Justice, foreign arbitral awards are homologated and they can be regularly enforced in Brazil.
One material innovation imposed by the Superior Tribunal of Justice on the practice of homologation procedures relates to the possibility of a party requesting an injunctive relief before the final decision on the homologation of the foreign arbitral award.
The Brazilian Supreme Court had a series of precedents stating that foreign awards or orders could not produce any kind of effect within Brazilian territory before a final decision on the homologation procedure was rendered. This position was based on a literal interpretation of articles 483 and 484 of the Brazilian Code of Civil Procedure.
When the competence to rule on the homologation requests shifted in 2004, the Superior Tribunal of Justice issued Resolution No. 9/2004, regulating these procedures and expressly providing that an injunctive relief can be granted while the homologation request is still pending.4
Although it is expected that the court will be very strict in the analysis of injunction relief requests, this is an important step taken by the judiciary in order to guarantee the effectiveness of international judicial cooperation and, thus, of the enforcement of arbitral awards in international arbitration.
Non-interference on the merits of the award
Another issue that is important to emphasize with respect to recognition and enforcement of foreign arbitral awards in Brazil is related to the nature of the analysis of the foreign award made by the Superior Tribunal of Justice.
In the Brazilian legal system, when the court analyzes the request for homologation of a foreign arbitral award, it does not examine the merits of the decision. The analysis is limited to the fulfilment of the formal requirements established in articles 38 and 39 of the BAL, as well as in Resolution No. 9/2004.
The Supreme Court had always been very strict in the application of this principle and we can now assert that the Superior Tribunal of Justice has adopted the same position. There are already some precedents in which parties have filed oppositions to homologation requests raising arguments related to the merits of the foreign arbitral award and the Superior Tribunal of Justice has strongly rejected these oppositions, emphasising that the merits of a foreign award is not subject to review in homologation procedures.5
Consent to the arbitration agreement
In the homologation of foreign arbitral awards, the Superior Tribunal of Justice has also issued two very interesting decisions with respect to the consent of the parties to the arbitration agreement.
Both cases involved arbitral awards made in procedures governed by the arbitration rules of the Liverpool Cotton Association, and the core of the dispute was the same issue: had the parties expressed their consent to submit disputes deriving from the contract to arbitration?
The argument raised by the parties that were opposing the homologation of the foreign arbitral award was basically the same. The BAL states that arbitration clauses are only valid if they are set forth in writing and with the express consent of the partes. Since the party had not expressly given its consent to the arbitration clause (the agreement was not signed by the parties), the foreign arbitral award could not be homologated in Brazil, according to the defendants in these proceedings.
While in one case (SEC No. 866) the Superior Tribunal of Justice reached the conclusion that there was no arbitration agreement and therefore denied the homologation request, in the other case (SEC No. 856) the result was exactly the opposite: the Superior Tribunal of Justice granted the exequatur to the foreign arbitral award, recognising that the party had tacitly agreed to submit disputes to arbitration.
The analysis of the two decisions leads to the conclusion that the factual scenarios were quite different in these two cases and the Superior Tribunal of Justice took into consideration the behaviour of the parties to conclude that the different factual scenarios lead to different conclusions.
According to the opinion of the Superior Tribunal of Justice issued in SEC No. 856, although it could be argued that the parties, when they agreed on the terms and conditions of the contract, had not expressly given their consent to the arbitration clause, the evidence presented in the files had shown that when the arbitral procedure was initiated, the defendant participated in the procedure without presenting any challenge to the existence and validity of the arbitration. The Tribunal concluded that the participation in the arbitral procedure, without any challenge to the procedure at the time the issue arrived, constituted a tacit consent to arbitrate disputes derived from such contract.
On the other hand, in SEC No. 866, the Tribunal analysed this very same issue and concluded that, in this case, there had been no tacit agreement with respect to the arbitration clause. One of the main issues argued by the court in this decision was the fact that the party, in the arbitral procedure, had promptly challenged the existence of a valid and enforcement arbitration agreement.
Transfer and assignment of rights deriving from the arbitration clause
The Superior Tribunal of Justice has also analysed the effects of the assignment and transfer of rights and obligations undertaken in relation with an arbitration clause set forth in a certain agreement.
There has been one case in which the party opposed the homologation of a foreign arbitral award, claiming that it had never executed the arbitration clause and that it had not agreed to submit disputes to arbitration.
However, the claimant produced evidence showing that the arbitration clause had been agreed upon with a subsidiary of the defendant, who afterwards had been merged into the parent company (the defendant), and, as a consequence of the merger, all the rights and obligations of the subsidiary were transferred to the parent company.
In this case, the Superior Tribunal of Justice applied the general rule of the Brazilian Corporations Law and concluded that the arbitral award was valid and should be homologated in order to be regularly enforceable in Brazil (SEC No. 831).
The Tribunal also has dealt with a case in which, after the execution of a contract containing an arbitration agreement and the issuance of an arbitral award solving a dispute deriving from such contract, one of the parties assigned its rigths under the contract and under the foreign arbitral award to a third party.
The assignee of the rights commenced a homologation procedure in Brazil and the Superior Tribunal of Justice denied the request based on the argument that the third party lacked standing to request the homologation of the foreign arbitral award because nothing had been granted to him in the award (SEC No. 968). According to the terms of the opinion, the scope of the matters analysed in a homologation procedure are narrow and the tribunal could not analyse whether according to the assignment executed by the parties the assignee had standing to commence such proceeding.
Service of process
Another issue the Superior Tribunal of Justice had to address was the service of process in the arbitration proceedings.
The Supreme Court had established firm precendents stating that foreign court orders issuing judgments in default against defendants domiciled in Brazil were only enforeceable and, therefore, could only be homolgated, if the party domiciled in Brazil had been served through a rogatory letter.
In SEC No. 874, one of the parties opposed the homologation of a foreign arbitral arward, claiming that the award had been issued in an arbitral procedure in which he was a party and he had not received service of process through a rogatory letter, one of the requirements for the homologation of the foreign arbitral award.
The Superior Tribunal of Justice rejected the opposiong granting the exequatur to the foreign arbitral award. The opinion of the tribunal clearly explains that the Supreme Court precendents were applicable only to judicial procedures held abroad.
Arbitration, on the other hand, is governed by article 39 of the BAL, which contains an express provision that in arbitral procedures the party may be served through the means established in the arbitration clause or in accordance with the rules of any arbitral institution chosen by the parties.
Analysis of all the issues mentioned above leads us to the conclusion that the Superior Tribunal of Justice has been very conscious of its role of judging requests for homologation of foreign arbitral awards and has been very careful in the analysis of each matter submitted to the tribunal.
It can be asserted that, so far, the shifting of competence from the Supreme Court to the Superior Tribunal of Justice has produced positive effects in the development of arbitration in Brazil.
1. See our contributions to previous editions of this publication.
2. Articles 483 and 484 of the Brazilian Civil Procedure Code.
3. Article 105(I)(i) of the Brazilian Constitution.
4. Article 4, section 3 of Resolution No. 9/2004.
5. SEC No. 507, 611, 760 and 866.