The claimant and the first respondent were parties to a shareholders' agreement (SHA) relating to their interests in the third respondent. The agreement was governed by the Brazilian law no. 6404 of 15 December 1976. The second respondent held the majority of the voting shares in the third respondent and was itself controlled by the first respondent. The parties were all Brazilian companies. The claimant accused the respondents of breaching the agreement by approving without its consent certain resolutions which changed the capital and by-laws of the third respondent and by overriding the claimant's veto when electing the officers of the third respondent. It argued that this constituted an absolute breach of its fundamental rights under the agreement and sought to recover the above-market premium and related costs it had paid for its shareholdings.

La demanderesse et la première défenderesse étaient parties à une convention d'actionnaires portant sur leurs participations dans la troisième défenderesse. La convention était régie par la loi brésilienne n° 6404 du 15 décembre 1976. La deuxième défenderesse détenait la majorité des actions avec droit de vote de la troisième défenderesse et était elle-même contrôlée par la première défenderesse. Les parties étaient toutes des sociétés brésiliennes. La demanderesse reprochait aux défenderesses d'avoir contrevenu à la convention en approuvant sans son consentement certaines résolutions modifiant le capital et les statuts de la troisième défenderesse et en passant outre son veto lors de l'élection des administrateurs de celle-ci. Elle y voyait une violation absolue de ses droits fondamentaux conformément à la convention et demandait le remboursement de la prime supérieure au prix du marché et des frais afférents qu'elle avait payés pour ses titres.

El demandante y el primer demandado eran partes en un acuerdo de accionistas sobre sus intereses en la tercera parte demandada. El acuerdo estaba regido por la ley brasileña nº 6404 con fecha 15 de diciembre de 1976. El segundo demandado controlaba la mayoría de las acciones con derecho a voto en la tercera empresa demandada y, a su vez, estaba controlado por el primer demandado. Todas las partes eran empresas brasileñas. El demandante acusó a los demandados de incumplimiento del acuerdo por haber aprobado sin su consentimiento diversas resoluciones que modificaron el capital y los estatutos del tercer demandado y por haber anulado el veto del demandante al elegir los consejeros del tercer demandado. Este alegó que todo ello constituía una violación total de sus derechos fundamentales conforme al acuerdo e intentó recuperar la prima superior al índice del mercado y los gastos relacionados que había tenido que pagar por su participación accionarial.

'148. The Arbitral Tribunal has found that [Respondent 1] and [Respondent 2] breached both [Claimant]'s voting and nominating rights under the SHA. It has also found that [Respondent 3] breached its obligations under the SHA as far as [Claimant]'s nominating rights are concerned. However, the Claimant is not requesting compensation for the consequences of each of these breaches considered separately but for the alleged loss of all its rights under the SHA. Thus in order to be able to grant [Claimant]'s all or part of the monetary relief it claims, the Arbitral Tribunal must first find out that [Claimant] has definitively lost all its rights under the SHA. If not, the Claim must fail.

149. It is true, as pointed out by the Respondents, that the Claimant did not request the termination of the SHA in its request for arbitration and even expressly stated at the hearing that it was not seeking such termination . . . However, while in its Request for Arbitration . . . the Claimant was seeking "to protect its rights under the Shareholders' Agreement", in its amendment to the Request of Arbitration . . . it sought a declaration that the Respondents' breaches constituted "an effective taking" of the SHA, which entitled it to recover the value of the premium it has paid when making its investments in [Respondent 3] and its subsidiaries. This was confirmed in its Statement of Claim . . . In its post-hearing brief, the Claimant stressed that termination was intrinsic (pedido implicito) and a necessary part of the relief sought.

150. It results from the Claimant's explanations at the hearing that it does not see clear differences between the concepts of "taking", "termination", "rescission" or "resolution". Moreover, the Claimant has apparent difficulties in distinguishing between the termination of its rights and the termination of the SHA. Yet, whatever be the obvious inaccuracies of the Claimant in the use of basic legal concepts, there is no doubt as to what has been the content of its claim as from its Amendment to the Request for Arbitration . . .: the Claimant was not any longer seeking the enforcement of its rights under the SHA but compensation because the Respondents' alleged breaches had made the SHA valueless. In legal terms, such a request amounted to requesting a declaration that the Respondent had wrongfully terminated its rights under the SHA and compensation for the resulting damages. . . .

151. Thus, the Arbitral Tribunal cannot follow the Respondents when they contend that the Claimant purported to recover the value of its rights under the SHA and at the same time keep those rights. The notion that the Respondents had terminated its rights under the SHA was the very basis for Claimant's request for damages as from the filing of its Amendment to the Request for Arbitration. Since the SHA is a synallagmatic contract, the termination of [Claimant]'s rights entails the termination of its obligations and, thus, the termination of the SHA, at least as far as [Claimant] is concerned. Therefore, a request that the Arbitral Tribunal declare that the SHA was terminated as far as [Claimant] is concerned was actually "intrinsic" in its request for damages relief, as a pedido implícito. When the Claimant was indicating at the hearing that it was not seeking termination of the SHA, it was on the assumption that the termination of its rights had already occurred through the "effective taking" of the SHA by the Respondent and also because it considered that the Arbitral Tribunal could not declare the termination of an agreement involving parties foreign to the arbitration proceedings.

152. In this respect, the Respondents' statement that both the ICC Rules and Brazilian law unequivocally required [Claimant] to state the relief requested and that an award ordering relief not sought would be made extra petita is correct but irrelevant. Leaving aside the facts that these arbitration proceedings are not governed by Brazilian procedural law, according to No. 44 of the Terms of Reference, and that Article 19 of the ICC Rules implicitly allow new claims that fall within the limits of the Terms of Reference, which encompasses the concept of pedido implicito, the Arbitral Tribunal is perfectly aware of its duty not to issue an award ultra or extra petita. However, the finding by the Arbitral Tribunal that the Claimant's rights under the SHA have been terminated, which necessarily implies that it is not any longer a party to it and, thus, that the SHA is terminated as far as [Claimant] is concerned, is not ultra or extra petita. When the Respondent makes the contrary suggestion, it enters within confusion between the concepts of "relief" and legal and/or factual "ground" for the "relief" being granted. . . . The demonstration, necessary for the monetary relief sought being granted, that the SHA has been terminated as far as [Claimant] is concerned is a factual and legal ground for this relief and not the relief itself. The Claimant could invoke this ground at any stage of the proceedings, before the closing of the debate, provided the Respondents had the possibility to discuss it. As it has been already pointed out, it did so . . . Thus this factual and legal ground was fully discussed and the Arbitral Tribunal is entitled to make a decision in its respect.

153. Consequently, the Arbitral Tribunal will first decide whether the SHA has been terminated in so far as [Claimant] is concerned (a) and only in case the reply is in the affirmative, it will decide whether [Claimant] is entitled in whole or in part to the monetary compensation it is seeking (b).

a) The termination of the SHA as far as [Claimant] is concerned

154. The Respondents contend that the Claimant may not rely on the termination of the SHA because it has not resorted to the provisions of its Section 6. The Arbitral Tribunal does not share that view. Section 6, in particular 6(2), contains an express termination clause as contemplated under Article 474 of the Brazilian Civil Code. If the conditions and the contractual procedure referred to therein are met and respected, the aggrieved shareholder has the right to terminate the SHA with respect to the defaulting shareholder. No intervention of the judge is required. Such a provision, which grants the aggrieved shareholder a right of automatic termination, without intervention of the judge, wider than the general right of termination existing under the Brazilian Civil Code, does not deprive a party from the right to ask the judge to declare that the SHA is terminated for causes admitted by the general law.

155. As a legal basis for its claim that the Respondents have terminated its rights under the SHA, the Claimant, on the basis of [a legal expert's evidence], refers to Article 475 of the Brazilian Civil Code according to which: ?The party that is aggrieved by the breach can either request termination of the agreement or enforce its compliance, but, in either case, indemnity via payment of losses and damages applies.? It also relies on the concept of "absolute breach" as embodied in Article 395 of the Brazilian Civil Code and to the breach of the affectio societatis which, according to Brazilian case law, is a valid cause for termination of a shareholders' agreement.

156. The Arbitral Tribunal does not need to characterize the breaches of the SHA by the Respondent that it has found as being an absolute breach pursuant to Article 395 of the Brazilian Civil Code to find that the SHA is terminated on the basis of Article 475 of the same Civil Code. Otherwise the option granted by this Article, which does not contemplate termination only but also the performance of the contract would be meaningless. Likewise, the breach of the affectio societatis, as established by Brazilian case law, is a cause for termination that does not necessarily depend on the existence of an "absolute breach". As the Superior Court of Justice has already decided:

Termination of the shareholders' agreement due to breach by the parties or general non-performance as well as breach of the affectio societatis is admissible, supported by the general theory of obligations, and the possibility of specific performance of the obligations contained in the agreement, as set forth in Article 188, par. 3, of Law No. 6.404/76, does not constitute an obstacle to that intent. (Superior Court of Justice, Special Appeal No. 388423/RS, reported by Judge Sálvio de Figueiredo Teixeira, Court's Gazette of April 8, 2003)

What matters for the affectio societatis to be breached is the elimination of the causa contractus resulting from the breach. As stressed by the Superior Court of Justice, in that event, the possibility of specific performance of the obligations contained in the agreement is not an obstacle to its termination. This is also the position of Professor Modesto Carvalhosa in his Comentarios à Lei de Sociedades Anonimas where he says:

The hypothesis of breach of the affectio in the case of an agreement on vote and control are rather frequent.

So, with a manifestation of dissidence or discordance among the parties, express or tacit, the requisite for dissolution is established.1

157. In the present case, the Respondents have manifestly ignored the fundamental rights of the Claimant under the SHA to be a part of the control block of [Respondent 3] and its subsidiaries through the exercise of voting and nominating rights. By doing so, they have destroyed the relation of trust that is at the very root of a shareholder agreement and that the Superior Court of Justice has called affectio societatis. The use of the formula affectio societatis may not be the best choice of terminology when a shareholders' agreement is at stake, and the reference to intuitu personae could be more appropriate. But there is no doubt that, whatever be the terminology used, the motive for execution of a shareholders' agreement is always the existence of mutual confidence and personal cooperation among the parties. The fact that one or several of them be publicly traded companies is, in this respect, irrelevant. The supervening breach of such mutual confidence and personal cooperation extinguishes the contractual relation. It is a case of impossibilidade superveniente (supervening impossibility), not to fulfill one or several obligations, but to achieve the contractual raison d'être because it has lost its very roots. As a result, the contract is deprived of its very substance.2

Consequently, the Arbitral Tribunal finds the Respondents' breaches of their obligations under the SHA, as identified in this Award, have destroyed the necessary relation of trust between [Claimant] and the Respondent and made impossible the achievement of its raison d'être. As a result, the SHA has been terminated and [Claimant] has any longer neither rights nor obligations under the SHA.

As the SHA is a contract implemented on a continuous basis, which had produced effects before the occurrence of the impossibilidade superveniente, the termination operated ex nunc, at the date of the first breach of the Respondents' obligations . . .3

b) The monetary compensation sought by [Claimant]

158. The Claimant is entitled to monetary compensation by the Respondents for the loss of its rights under the SHA as a result of its termination since such termination was caused by the breach of some of their obligations under the SHA. Pursuant to Article 402 of the Brazilian Civil Code [Claimant] is entitled to compensation for the damnum emergens, the actual loss, and for the lucrum cessans, the loss of profit it is able to prove having sustained.

159. On the basis of the evidence of its financial expert . . . the Claimant contends that it should be restored to its position prior to each investment premised upon its rights under the SHA regarding [Respondent 3] and its subsidiaries. It requests to be reimbursed by the Respondents [the amount] it alleged to have paid as the above-market premium for shares in [Respondent 2], [Respondent 3], [company A] and [company B], together with . . . paid as CPMF tax associated with such purchases, such amounts adjusted for monetary correction from the date of each payment made by Claimant until the . . . date of Respondents' original breach of the SHA.

On the basis of the evidence of its financial expert . . . the Respondents consider that the value of [Claimant]'s rights under the SHA should be assessed at the time of the alleged breach . . .

160. Having carefully read [the experts'] respective Reports and followed with the greatest interest and attention their live evidence at the hearing, the Arbitral Tribunal is convinced by [the Respondent's expert's] conclusions, even if it has not followed all the aspects of [his] reasoning. The Arbitral Tribunal has double-checked his assessment of the compensation [Claimant] is entitled to and reached an amount very close to his, in the light of the two preliminary observations hereinafter

161. First, since the termination of the SHA, as far as [Claimant] is concerned, and the consecutive loss of its rights under the SHA occurred on [the date of breach], [Claimant] cannot be restored to its position prior to each investment premised upon its rights under the SHA. Between the date of each of the investments and the date when its rights were terminated, the investments were protected by the SHA, and [Claimant] took or had the possibility to take advantage of such protection. It is only on [the date of breach] that the termination of its rights under the SHA transformed [Claimant] into a minority shareholder deprived of the influence that the SHA had been giving it over the way [Respondent 3] or its subsidiaries conduct business between the date of each investment and [the date of breach].

162. Second, [Claimant] has entered into further shareholders' agreements that are similar to the SHA and, as admitted by [Claimant], provide the same protection to its investment in [companies A and B]. These shareholders' agreements are not within the reach of this arbitration and this Arbitral Tribunal cannot make any decision in their respect. So, the investments covered by these shareholders' agreements must be excluded from the assessment of the damages resulting from [Claimant]'s loss of its rights under the SHA. The only investments to be taken into account are [Claimant]'s investments in [Respondent 3] and [Respondent 2] . . .

163. In light of these two preliminary observations, the Arbitral Tribunal is satisfied that the actual loss sustained by [Claimant], as a result of the termination of its rights under the SHA, is the difference between the values, on [the date of breach], of its investments in [Respondent 3] and [Respondent 2], assessed with the protection conferred by the SHA on the one hand and assessed without that protection on the other hand. . . . The above-mentioned difference is the economical expression of that value for [Claimant], as the value of its rights under the SHA, which were lost at the date of the termination. Being deprived of the benefit of the SHA as a result of the Respondents' breaches identified in this Award, [Claimant] must be compensated by the Respondents for the loss of this value.

164. The parties and their financial experts . . . are in sheer contradiction as to the calculation of such compensation. However, all agree that one key element for its calculation is the amount over and above the market price of [Respondent 3]'s and subsidiaries' shares that [Claimant] paid as a premium to be part of the control block of the company. This premium (hereinafter the "premium") corresponds precisely to the super-evaluation given to the shares necessary to guarantee the Company's controlling power and is recognized as legitimate by Brazilian legislation . . .

165. [Claimant's expert's] evidence is that [Claimant] paid a premium of approximately 146.9% over the then prevailing market price for the shares. . . . However, [the expert's] justifications for such conclusion are not convincing since they largely rely on a comparison between the price actually paid by [Claimant] for its investment in [Respondent 3] and [Respondent 2] and the price it would have paid for the same stake through the acquisition of preferred, non-voting shares in the market. One flaw in such a comparison is that the market did not offer such a large stake due to its very low liquidity. Another one is the inclusion, in [the expert]'s calculation of the premium, of the price of the shares purchased from [company C]. Although this investment was explicitly contingent on the execution of the SHA, [company C] neither participated in the Shareholders' Agreement nor played any role in its negotiation. As a shareholder, [company C], which was abandoning its participation in [Respondent 3], did not benefit from a Shareholders' Agreement, and could not transfer to [Claimant] the benefit thereof. Thus, the price paid by [Claimant] to [company C] for its investment in [Respondent 3] could not have included any premium as consideration for rights under the Shareholders' Agreement.

[Claimant's expert] further explains that, in the privatization of [such] companies in Brazil, between 1996 and 2000, investors entered into several transactions where the premium paid over the existing market prices ranged from 11.5% to 727% (considering a sample of nine transactions), with an adjusted average of 149%. Such an average is meaningless as the specific situation of each company is different as shown by the considerable extent between the minimum (11.5%) and the maximum (727%).

166. [Respondent's expert]'s evidence is that the premium paid by [Claimant] for the SHA did not exceed an average of 9.8% of its investments. Its assessment is essentially based on the gap between the price of shares purchased from [Respondent 3], the remaining shareholders of which provided [Claimant] with a shareholder agreement, and the price of shares purchased from [company C] which, as already pointed out, could not provide [Claimant] with a shareholder agreement. The two transactions were very similar and the only significant difference was that in the second case, the price could not reflect the value of a shareholder agreement that [company C] could not grant. Thus, it is reasonable to assess the value of the SHA to 9.8% of the investment.

167. The reasonableness of this assessment is corroborated by a valuation of [Respondent 3] made by a company [of financial advisers] at the request of [company D], another party to the SHA. On the covering letter transmitting this valuation, . . . several months before the dispute between the Respondents and the others parties to the SHA, the managing partner of [the financial advisers] included the following observation: "This per share value gives no additional value to the semi-control position accorded to [company D] pursuant to the . . . Agreement Among Shareholders. The semi-control premium might add an additional increment to the share value, typically in the range of 10% to 15%." On this basis, the author decided to add an average of 12.5% as a semi-control premium on the value of [company D]'s shares. Obviously, this observation and the decision made on its basis are not conclusive in the present arbitration since the full report of [the financial advisers] was not submitted, the positions of [Claimant] and [company D] in [Respondent 3] and under the SHA were not identical and they had not the same bargaining power. Yet it shows that [Respondent's expert's] assessment at 9.8% of the value of the premium on the basis of the gap between the objective prices of two real similar transactions concerning the investments discussed in these proceedings is in line with the assessment of the value of a similar premium by independent experts at a time where the present dispute could not influence them. It shows also that [Claimant's expert]'s assessment of 146.9%, based on transactions disconnected with [Claimant]'s actual investments is unrealistic. Consequently, the Arbitral Tribunal retains the percentage of 9.8% of the investment as expressing the value of the rights protected by the SHA.

168. As the only investments to be taken into account to calculate [Claimant]'s damages are the investments in [Respondent 3] and [Respondent 2] . . . the amount of the premium included in the value of that investment was . . .

169. However, the damage for which [Claimant] is entitled to be compensated for the loss of its rights under the SHA is the value of the premium on [the date of breach] (see No. 159). According to [Claimant's expert], in order to calculate such damage, the amount of the premium paid by [Claimant] has to be adjusted to reflect inflation from the date of each investment to the date of final payment of the award. This is understandable within the logic of [Claimant]'s claims that its position prior to the investments should be restored, but such logic has not been accepted by the Arbitral Tribunal as explained above (No. 159).

170. To calculate the value of the premium on [the date of breach], it is necessary to take into account the value of the investment protected at this time. In case the value of the investment protected has increased since the date it was made, the economic value of the premium lost must have increased as well, in case it has decreased, the economic value of the premium lost must have equally decreased. It is common ground that the value of [Claimant]'s investment in [Respondent 3] declined drastically between the time of its initial . . . investment and the [period when the breach occurred]. During that period . . . [the] sector was subject to a very serious economic crisis, which had negative effects on [Respondent 3]'s operations, as it did on all Brazilian . . . companies [in the sector]. During the same period, the price of [Respondent 3]'s publicly traded stock has declined. [Respondent's expert] gave evidence that this decline was of 41% by . . . the date that it retains as that of the first breach. This evidence was not convincingly challenged, and no evidence was brought that such decline has significantly increased or decreased on . . . the date that the Arbitral Tribunal has accepted to be that of the first breach and of the termination of the SHA, as far as the Claimant is concerned. Although the price market, in case of low liquidity is not a sound basis to assess the value of a transaction concerning a specific large stake of shares, its increase or decrease is the reflection of the evolution of value of the stock. On this basis, the Arbitral Tribunal is satisfied that on [the date of breach] the value of the [Claimant]'s initial investment . . . has decreased by 41%. . . .

171. Consequently, the value of the 9.8% premium included in the value of [Claimant]'s initial investment as assessed on [the date of breach] is: . . . This is the economic value of the rights that [Claimant] lost as the result of the termination of the SHA on [the date of breach].

Obviously, one would obtain the same result by the direct application of the 41% percentage of decrease of the value of [Respondent 3] traded stock to the premium . . .

172. When [Claimant] made its investments, such investments were subject to a Temporary Contribution on Financial Operations known as CPMF (hereinafter the "CPMF"), at the rate of 0.38%. [Claimant] claims it has paid . . . as CPMF over the premium for which it requested compensation plus an adjustment to reflect inflation. This request had its logic when made in relation to a claim for restoration of [Claimant]'s position prior to the investments. Since the Arbitral Tribunal has not accepted that approach and decided that the date of assessment of the damage was the date of termination of [Claimant]'s rights under the SHA, therefore, the CPMF cannot be taken into calculation for assessing the amount of the compensation [Claimant] is entitled to.

173. The Claimant is seeking interest on the amount of the compensation it is entitled to as from [the date of breach] until full payment of this award. It considers that the most appropriate index and rate is the rate of the Sistema Especial de Liquidação e Custódia (SELIC), administered by the Central Bank of Brazil.

The Respondents' view is that, in light of the provisions of Section 9.8(i) of the SHA, the appropriate rate of interest would be the Chase Manhattan Prime Rate stipulated in the Shareholders' Agreement, or in the alternative, the risk-free Brazilian rate approximated by the rate of inflation plus 1% annually. To sustain that view, the Respondents allege that the parties have agreed that interest should be awarded at a risk-free rate that does not compensate [Claimant] for risks it did not undertake and also because [Claimant] is a US investor which intends to disinvest from Brazil.

174. Section 9.8(i) of the SHA requires the Arbitral Tribunal to "fix an appropriate rate of interest, and a monetary correction index, each to be applied from the date of the breach or other violation to the date when the award is paid in full". It does not require the application of the Chase Manhattan Prime Rate but that the Arbitral Tribunal should not set an interest rate lower than the lowest prime commercial lending rate offered by the Chase Manhattan Bank for 90-day loans for responsible and substantive commercial borrowers or higher than the maximum interest rate permitted by Brazilian law. Accordingly, the Arbitral Tribunal finds it is appropriate to apply the SELIC rate which contains both elements of interest and monetary correction. The fact that [Claimant] is a US investor is irrelevant and there is no conclusive evidence that it intends to disinvest from Brazil in a short future.

To allege that the parties have agreed that interest should be awarded at a risk-free rate, the Respondents refer to two respective statements of [the parties' experts] which do not express any real agreement, let alone the agreement of the parties, since both of them have obviously a different notion of the concept of risk-free rate.

On the basis of the evidence submitted, the Arbitral Tribunal is satisfied that the application of a rate such as the SELIC, administered by the Central Bank of Brazil and including both interest and monetary correction is appropriate within the framework of Section 9.8(i) of the SHA. Consequently, the Respondents will be condemned to pay interest pursuant to the SELIC on the amount of . . . as from [the date of breach] until the date of full payment.'

1
"As hipóteses de ruptura da affectio no seio de acordo de voto e de controle têm-se mostrado bastante freqüentes. Assim, havendo manifestação de dissidência ou discórdia entre os pactuantes, tácita ou expressa, estará estabelecido o requisito da dissolução.? (Modesto Carvalhosa, Comentários à Lei das Sociedades Anônimas, 2nd volume, p. 555).

2
See Fábio Konder Comparato, "Notas sobre a resolução de contratos", Revista de Direito Mercantil, Industrial, Econômico e Financeiro, nº 43, July/September, 1981, p. 79, in particular p. 83(84: "... a verificação da impossibilidade de se realizar a razão determinante do contrato, depois de celebrado, torna-o insubsistente" ("... the finding of the impossibility to achieve the raison d´être of the contract after its execution deprives it of its substance") and "... Em suma, o desaparecimento dessa causa ou pressuposto essencial torna a relação por ele criada ineficaz, privando-a de todo sentido e função econômica". ("In sum, the disappearance of this cause or essential assumption of the deal renders ineffective the relation so created, depriving it of any meaning and economic function." )

3
In this respect, see Fabio Konder Comparato, op. cit., p. 85.