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Copyright © International Chamber of Commerce (ICC). All rights reserved.
( Source of the document: ICC Digital Library )
Thierry Tomasi and Marcos de Campos Ludwig
Respectively, Partner with Betto Seraglini in Paris, France, and Senior Counsel with Veirano Advogados in Rio de Janeiro, Brazil.
In December 2015, the Brazilian Superior Tribunal de Justiça held that, under the New York and Panama Conventions and Brazilian arbitration law, a foreign arbitral award that had been set aside by a court in the country where the award was made could not be recognised in Brazil.
In 2001, the French company EDF International SA (EDFI) agreed to purchase the shares that the Spanish company Endesa Internacional SA, which subsequently became Endesa Latinoamérica SA (Endesa), and the Argentinian company Astra Compañia Argentina de Petróleo SA, which was subsequently acquired by YPF SA (YPF), held in the capital of Electricidad Argentina SA (EASA) and its subsidiary Empresa Distribuidora y Comercializadora Norte SA (Edenor). The share purchase agreement contained price adjustment clauses in favour of all parties, depending on given circumstances and subject to certain conditions.
Following the severe economic crisis that struck Argentina in 2001, EDFI commenced an ICC arbitration against Endesa and YPF in July 2002, claiming that the conditions for an adjustment of the price of the EASA/ Edenor shares in its favour were met. Endesa and YPF objected and instead put forward a counterclaim for an adjustment of the price in their favour. On 22 October 2007, the arbitral tribunal sitting in Buenos Aires held that there were grounds for adjusting the share price in favour of both sides. It thus partly granted EDFI’s principal claim while also partly granting the counterclaim of Endesa and YPF.
EDFI, Endesa and YPF all requested the partial setting aside of this award in the Argentinian courts. EDFI argued that the part of the award that upheld the claims of Endesa and YPF should be set aside because it was an arbitrary ruling which flouted public policy and the law and constitution of Argentina. Endesa and YPF argued that the ruling in favour of EDFI should be annulled because it had been reached ex æquo et bono rather than on the basis of Argentinian law, as required by the share purchase agreement. On 9 December 2009, the Cámara de Apelaciones en lo Comercial in Buenos Aires set aside the award, finding that the tribunal had not properly applied Argentinian law when ruling in favour of EDFI, Endesa and YPF, and that in doing so it had decided the matter ex æquo et bono, in breach of its obligation to rule according to Argentinian law. The Argentinian Corte Suprema upheld this judgment on 29 June 2010.
Despite its request to have the award partly set aside, EDFI meanwhile moved to enforce the part that was in its favour and sought recognition of the award in France, the United States, Chile, Spain and Brazil. The Paris Tribunal de Grande Instance granted recognition of the award; the Delaware District Court stayed the proceedings pending the outcome of the parties’ applications to have the award set aside; while the Chilean and Spanish courts refused recognition of the award as it had been set aside by the Argentinian courts.
In the Brazilian proceedings, YPF and Endesa opposed recognition of the award in the Superior Tribunal de Justiça (STJ) on the ground that the international conventions to which Brazil was a party (i.e. the 1958 New York Convention, the 1975 Panama Convention, and two regional agreements — the 1992 Protocol of Las Leñas1 and the 2002 Agreement of Buenos Aires2 — made in the context of Mercosur) and Brazilian domestic law (i.e. the Brazilian arbitration act, the law of introduction to the provisions of Brazilian law3 and the STJ’s own procedural rules) prohibited recognition of an arbitral award that had been set aside by the courts in the country where it was made. The federal public prosecutor also objected to recognition of the award.
On 2 December 2015,4 the STJ unanimously rejected EDFI’s application to have the award recognised in Brazil. Recognition of an award that had been set aside at the seat was regarded as being ruled out by article V(1)(e) of the New York Convention, article 5(1)(e) of the Panama Convention, article 20(e) of the Protocol of Las Leñas, article 38(VI) of the Brazilian arbitration statute, article 15 of the law of introduction to the provisions of Brazilian law and article 216-D of the STJ’s own procedural rules. According to the STJ, the recognition process could not give effect to an award that had become ineffective in the country where it was made, and the STJ refused to examine whether the decision to set aside the award was justified.
The broad terms used by the STJ in its decision leave little doubt that this qualifies as Brazil’s leading case on the subject. The STJ seems to have adopted a clear position on the controversial issue of whether articles V(1)(e) of the New York Convention and 5(1)(e) of the Panama Convention necessarily imply the rejection of an application for recognition of an award that has been set aside by the courts of the country where it was made. In the eyes of the STJ, these provisions clearly make such recognition impossible.
However, it is likely that the interpretation of the New York and Panama Conventions has been influenced by other potentially applicable international instruments intended primarily to govern the recognition of foreign judgments rather than awards (i.e. the Protocol of Las Leñas and the Agreement of Buenos Aires). The same can be said of the provisions of Brazilian domestic law. Article 38(VI) of the Brazilian arbitration act, the wording of which is identical to article V(1)(e) of the New York Convention, coexists with other provisions whose primary purpose is to address the recognition of foreign judgments (namely, the law of introduction to the provisions of Brazilian law and the STJ’s own procedural rules).
It remains to be seen how the principle laid down by the STJ will be applied in future cases. In particular, it is uncertain whether the STJ will continue to refuse to stay recognition proceedings when the award is subject to a set-aside action in the country where it was made.5 Similarly, in refusing to analyse the grounds on which the award was set aside in Argentina, the STJ gave effect to a judgment that had carried out a full review of the merits of the award. Future cases will show whether, in certain circumstances, the STJ might review the substance of a judgment setting aside an award in order to avoid giving effect to judgments that would be repugnant to the Brazilian legal order.
The Protocol on Jurisdictional Cooperation and Assistance in Civil, Commercial, Labor and Administrative matters signed in Las Leñas in 1992.
The Agreement on Jurisdictional Cooperation and Assistance in Civil, Commercial, Labor and Administrative matters between the Mercosur, Chile and Bolivia signed in Buenos Aires in 2002.
Legislative Decree No. 4.657 of 4 September 1942, as amended by Law No.12.376 of 30 December 2010.
STJ, Corte Especial, 2 December 2015, SEC 5.782/EX, Rapp. Min. Jorge Mussi, DJe 16 December 2015.
STJ, 23 November 2006, SEC 611, First Brands do Brasil Ltda. E STP do Brasil Ltda v STP — Petroplus Produtos Automotivos S/A PPA e Petroplus Sul Comércio Exterior S/A PSC, 2005 0055688-0, Rapp. Min. J. O. de Noronha; STJ, 20 August 2008, SEC 894, Líneas de Transmissón del Litoral S/A v Engenharia S/A e Inepar S/A Indústria e Construções, Rapp. Min. N. Andrighi, Corte Especial, DJe 9 October 2008; STJ, 15 August 2012, SEC 4.837, YPFB Andina S.A. v Univem Petroquímica Ltda, Rapp. F. Falcão, DJe 30 August 2012.