Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate) and Débora Auler de Almeida Prado (Associate), Mattos Filho Advogados
In a decision dated 3 February 2011, the Superior Court of Justice (STJ) continued a preliminary injunction, which was originally granted to suspend a judgment of the State Court of Rio de Janeiro that denied the execution of an arbitral award administered by the International Chamber of Commerce (ICC) on the basis that it was a foreign award. The STJ recognised that, under the Brazilian Arbitration Act 1996, awards rendered in Brazil should be considered domestic awards regardless of the nationality of the institution responsible for the administration of the arbitral proceedings.
As a result of Constitutional Amendment number 45/2004, Article 105, I, i of the Constitution of the Federative Republic of Brazil provides that the Superior Court of Justice (STJ) has the competence to grant exequatur (the need to obtain a court order before enforcing a foreign judgment) of foreign decisions.
The STJ also has constitutional competence to rule on appeals against decisions rendered by state courts whenever there is a possible federal law violation.
Under Article 105, III, a, the STJ is also competent to issue preliminary injunctions to suspend the effects of state court judgments pending the analysis of potential federal law violations.
Chapter V of the Brazilian Arbitration Act 1996 (Law. N. 9.306/97) (BAA) provides that the arbitral award shall have the same effect on the parties and their successors as a judgment issued by a state court, and if it includes an obligation for payment, it shall constitute an enforceable instrument (Article 31).
Chapter VI of the BAA contains the following provisions on the recognition and enforcement of foreign arbitral awards:
A foreign award shall be recognised and enforced in Brazil in accordance with the international treaties in effect in the national legal system and, in the absence of any such treaty, strictly in accordance with the terms of the BAA (Article 34).
In order to be recognised or enforced in Brazil, a foreign arbitral award is only subject to ratification by the STJ (Article 35).
The New York Convention (www.practicallaw.com/6-205-5196) was implemented in Brazil in 2002 in Decreto Legislativo n. 4311/2002 and applies to the recognition and enforcement of arbitral awards made in the territory of a state other than the state where the recognition and enforcement of such awards are sought. It also applies to arbitral awards not considered as domestic awards in the state where their recognition and enforcement are sought (Article I(1)).
Under Article 34 of the BAA, any arbitral award rendered outside the national territory shall be considered a foreign arbitral award.
The dispute concerns a request for execution of an arbitral award by the plaintiff, Nuovo Pignone SpA against the defendants, Marítima de Petróleo e Engenharia Ltda and Petromec Inc.
The award was rendered in Rio de Janeiro in arbitral proceedings administered by the International Chamber of Commerce (ICC). The defendants filed a motion to stay the execution of the award, arguing that since the award was rendered under the auspices of an international institution (the ICC), it constituted a foreign arbitral award, and therefore needed a prior recognition by the STJ to be enforced in Brazil. The defendants argued that Article 105, I, i, of the Federal Constitution should apply to the case.
The first instance court denied the motion to stay the execution, but was overruled by the State Court of Rio de Janeiro on appeal. The State Court held that the parties had contracted a foreign arbitration institution to resolve their conflict and therefore the award had to be recognised by the STJ to become enforceable in Brazil, even though the award had been made in Brazil. The State Court refused the application of Article 34 of the BAA due to the particular circumstances of the case. However, Judge Lúcia Maria Miguel da Silva Lima, dissenting, argued that both the BAA and the New York Convention must guide the court’s decision and the arbitral award should be considered to be domestic.
The plaintiff filed a Special Appeal in the STJ in order to modify the State Court’s decision. As Special Appeals do not have a suspensive effect on state court decisions, the plaintiff also sought an injunction before the STJ in order to suspend the appellate judgment until the merits of the Special Appeal could be analysed.
The STJ issued a preliminary injunction granting the suspension of the State Court’s decision. The injunction was subsequently continued by the STJ, which highlighted the existence of three different criteria that may be used to determine the nationality of an arbitral award:
Geographical criteria, which refers to the place where the judgment is rendered.
Procedural criteria, which takes into account the procedure law governing the arbitration.
Mixed criteria, which takes into account both geographical and procedural factors.
The court confirmed that Brazilian law has clearly adopted the geographical criteria, since Article 34 of the BAA provides that “any arbitral award rendered outside of the national territory shall be considered a foreign arbitral award”. Therefore, the fact that the terms of reference were signed in Paris was irrelevant to determine the nationality of the award. The arbitral award was rendered in Rio de Janeiro and thus it must be considered a domestic award.
The BAA does not distinguish domestic and international arbitration by reference to the nationality of the parties or the institution which has administered the proceedings. The BAA determines what is a domestic arbitral award and what is a foreign arbitral award by adopting the simple and objective criteria contained within Article 34, which establishes a geographical criterion to classify an arbitral award as a domestic or a foreign award. The procedure for enforcement of awards in Brazil differs depending on whether the award is domestic or foreign: foreign awards have to be recognised by the STJ in order to be enforceable in Brazil, whereas domestic awards can be executed immediately. This rule is also present in the New York Convention. If the award is made in Brazil, as in this case, the arbitral award should be considered domestic. If it is made outside Brazil, the arbitral award is considered foreign. In that sense, the State Court of Rio de Janeiro misinterpreted the BAA and the STJ rendered a fair decision by granting a preliminary injunction recognising that the arbitral award decided in Rio de Janeiro was domestic and should not need any kind of recognition by the STJ to be executed in the courts.