Arbitration is increasingly being chosen as a method of resolving disputes in contracts involving Brazilian parties. A key concern, both for Brazilian parties and for international parties doing business with Brazilian parties, is whether arbitral awards made in another jurisdiction can be recognized and, as a result, enforced, against counterparties with assets in Brazil.
Background: Recognition of foreign arbitration awards in Brazil
Law 9307, the Arbitration Law, was enacted in Brazil in 1996. Although the Arbitration Law initially faced constitutional challenge, the Brazilian Supreme Court ultimately held it to be constitutional in 2004. This has significantly encouraged the inclusion of arbitration clauses in contracts involving Brazilian parties.
Although Brazil signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention), which was internationally in force as of 7 June 1959, it was only included in Brazilian law upon the publication of Decree 4311 on 23 July 2002. The New York Convention is in line with the Brazilian Constitution and the Civil Procedure Code, which both require the recognition of foreign judgments.
The procedure for recognition of foreign awards
In order to be enforced in Brazil, foreign arbitral awards must first be recognized by the Superior Tribunal of Justice (STJ), the highest court in Brazil for non-constitutional matters. In deciding whether to recognize a foreign arbitral award, the STJ will not analyze the merits of the award, but will only examine the formal requirements specified in the Arbitration Law, the New York Convention and STJ Resolution 9, which provides the domestic rules for the recognition procedure. The requirements of the New York Convention and the Arbitration Law include the presentation by the requesting party of the duly authenticated original award or a duly certified copy of it and the original agreement of the parties to submit the dispute to arbitration (together with a sworn translation of any foreign documents into Portuguese)1. Both the New York Convention and the Arbitration Law also set out the basis on which recognition of the award may be refused. This is when it is proved that:
(i) the agreement containing the arbitration clause is not valid;
(ii) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present his case;
(iii) the award deals with a difference not contemplated or not falling within the terms of submission to arbitration or it contains decisions on matters beyond the scope of the submission;
(iv) the composition of the arbitral authority or the procedure is not in accordance with the agreement of the parties or the law of the country where the arbitration took place;
(v) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country under whose law the award was made;
(vi) according to the law of Brazil, the subject matter of the dispute is not capable of resolution by arbitration; or
(vii) the recognition or enforcement of the award would be contrary to public policy in Brazil2.
Contested recognition proceedings
As long as the requirements set forth in the New York Convention and the Arbitration Law are satisfied and enforcement of the award would not be contrary to national sovereignty or public policy, the successful party in a foreign arbitration can be confident that the award will be recognized in Brazil. The party seeking recognition must only follow the procedural rules set by the STJ in its Resolution 9, which include service of notice on the losing party to the arbitration, allowing it the opportunity to contest the recognition proceedings. If the recognition is contested, the only arguments that can properly be advanced relate to whether these requirements have been met. The case will be sent to the Special Court of the Superior Tribunal of Justice, which will request a legal opinion from the Federal Prosecutor's Office and then decide whether the formalities have been satisfied.
If a party contests the recognition of the award, the recognition proceedings will take longer than in the case of unopposed recognition proceedings. Analysis of the STJ's website shows that when recognition is contested, it takes an average of 16 months to reach a decision, while for uncontested cases the average is six months. However, even taking into account the time it would take to have an arbitral award recognized, arbitration proceedings will still be significantly faster than litigation in the Brazilian courts.
In contested recognition proceedings, an adverse costs award is usually made by the court, because any challenge to the recognition of the award delays the final conclusion of the case and requires additional work by counsel for the prevailing party. However, since the amounts involved in arbitral awards are generally high, the STJ has taken the parameters of Article 20(4) of the Civil Procedure Code as a basis for awarding legal fees, rather than those set out in Article 20(3) of the Code. The parameters in Article 20(4) allow the court a wide discretion in making an adverse costs order at what is deemed a fair amount considering the nature and importance of the case and the effort involved. In contrast, Article 20(3) provides for the Court to award costs of 10 to 20 percent of the amount of the award (which, in a high-value case, may be disproportionate).
Since the STJ assumed authority to recognize foreign arbitral awards, it has published on its website 22 decisions relating to contested requests for the recognition of foreign arbitral awards. Of these, only seven requests for recognition were denied, three for absence of a signature on the arbitration clause or submission agreement, two because the petitioner had no interest in the award and two for the failure to summons the opposing party in the recognition proceedings (which, as stated above, is an essential requirement). It should be noted that when recognition is refused for a failure to summons the opposing party, the petitioner can file for recognition again once it has duly served notice of the recognition proceedings.
The effect of recognition
Following recognition of the arbitral award, there is the question of its enforcement. A recognized award has the status of an enforceable judicial instrument (the same as a domestic court judgment). This makes the process fairly straightforward and assured.
It can be concluded that as long as the rules of the New York Convention, the Arbitration Law and STJ Resolution 9 are satisfied, the successful party in a foreign arbitration can be sure that a foreign award will be recognized in Brazil and that the enforcement proceedings will be straightforward. In comparison to resorting to the Brazilian courts to resolve disputes, arbitration is much quicker, even taking into account the need to recognize and enforce the award, not to mention the other advantages of arbitration, such as greater privacy. This explains the growing trend of parties choosing arbitration to resolve disputes in international agreements involving Brazilian parties.
* Fabiana Videira Lopes is a partner in the Litigation and Arbitration practice of Campos Mello Advogados, based in Rio de Janeiro. Her extensive civil litigation and arbitration practice encompasses civil liability, aviation, civil and commercial contracts and public law.
Footnotes
1. Article 37, I and II of the Arbitration Law and Article IV of the New York Convention
2. Articles 38 and 39 of the Arbitration Law and Article V of the New York Convention
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
