Brazil: Interim Measures in Arbitration in Brazil

The Third Chamber of the Brazilian Superior Court of Justice (Superior Tribunal de Justiça – STJ) recently ruled that once the arbitral tribunal is constituted the Judiciary Power no longer has jurisdiction/competence to determine any issue submitted to arbitration, including any related interim measure1.

The case at hand involved an interim measure  (medida cautelar inominada) brought by the Brazilian company Participações em Complexos Bioenergéticos S.A. – PCBIOS (PCBIOS) against the Brazilian company Itarumã Participações S.A. (ITARUMÃ).  The parties (PCBIOS and ITARUMÃ) entered into a partnership agreement for the implementation of a project of fuel production from renewable energy sources, creating a joint venture company called Complexo Bionergético de Itarumã – CBIO (CBIO).

In the course of the execution of this partnership agreement, claiming breach of contract, PCBIOS filed a restraining order for the suspension of all its rights and obligations as shareholder of CBIO, arguing that this interim measure was a preparatory procedure to assure the effectiveness of an arbitral award to be handed down in the arbitral proceedings to be instituted in the future. The first-instance decision issued by the judge of the lower court dismissed such restraining order.

Dissatisfied with this decision, PCBIOS filed an appeal (recurso de apelação) at the Court of Justice of the State of Rio de Janeiro (Tribunal de Justiça do Rio de Janeiro – TJRJ) to try to reverse it. In the meantime the arbitral tribunal was duly constituted and this new situation was expressly mentioned by ITARUMÃ in its answer, claiming that the merits of the controversy brought in the arbitral tribunal encompassed the facts under discussion in the appeal and in the proposed restraining order, which have the same object.

However, TJRJ upheld the appeal in favor of PCBIOS, stating that the arbitration clause does not deprive the Judiciary Power of granting urgent interim measures.

The Third Chamber of STJ reversed the TJRJ´s decision and ruled that:

  1. The arbitral tribunal has jurisdiction to prosecute and judge an interim measure formulated by the parties. The competence of the arbitral tribunal, however, is limited to the granting of the relief (tutela). Consequentely, the arbitral tribunal is not empowered to comply with coercive measures (power of imperium), which is reserved to the Judiciary Power. Therefore, if there is resistance on the affected party in accepting the determination of the arbitrators, the coercive measures shall be performed by the competent judicial court2
  2. Pending the constitution of the arbitral tribunal the party may ask the Judiciary Power to issue an interim measure to ensure the outcome of the arbitration3.
  3. As soon as the temporary circumstances that justified the contingency intervention of the Judiciary Power are overcome, considering that the entering into of the arbitration agreement as a rule implies the derogation of the State jurisdiction, the court records must be promptly forwarded to the arbitral tribunal. At this moment, the arbitral tribunal will take over the process and, if this is the case, will review the relief granted by the judicial court, maintaining, changing or revoking its decision.
  4. In situations where the arbitral tribunal is momentarily unable to manifest itself, the rules of jurisdiction are not provisionally observed. In such situations, the request for precautionary measures shall be submitted to the judicial court. However, this jurisdiction given to the judicial court is precarious and cannot be extended, subsisting only to the examination of the request of injunction.

In the specific hypothesis of the court records that we are analyzing herein, the judge of the lower court dismissed the injunction and refused the claim as unfounded. When the appeal was submitted to TJRJ, which granted the relief, the arbitral tribunal was properly constituted. At that time the State court (TRJR) was incompetent and should have dismissed the appeal.

The principle of competence-competence is recognized in Brazil4. This means that the arbitrator(s) is(are) competent to decide, by virtue of his/her(their) office or at the parties´ request, the issues concerning the existence, validity and efficacy of the arbitration agreement, as well as of the contract containing the arbitration clause5.

In summary, we conclude that before the beginning of the arbitral proceedings, the judicial courts may grant any interim measures they deem necessary as otherwise the parties would not be able to seek protection of their rights. Afterwards, the judicial courts may only grant interim measures in exceptional circumstances, when the arbitral tribunal is unable to rule on the subject.

Footnotes

1 Special Appeal (Recurso Especial) No. 1,297,974 – RJ (2011/0240991-9), having Itarumã Participações S.A. as Claimant/Appelant (Recorrente), and Participações em Complexos Bioenergéticos S.A. – PCBIOS as Respondent/Appellee (Recorrido), and as Reporting (Relatora) Justice Nancy Andrighi, of STJ. The decision was issued on June 12, 2012 and published in the Electronic Official Gazette (Diário da Justiça Eletrônico – DJE) on June 19, 2012. The special appeal filed by Itarumã Participações S.A. was granted.

2 As opposed to a judicial court, an arbitral tribunal is deprived of coercive powers. According to the provisions of paragraph 4 of article 22 of Law No. 9,307, of September 23, 1996 (the Brazilian Arbitration Act), the arbitrators may request to the judicial body that would have originally been competent to hear the case, to grant interim protective measures.

3 The Brazilian Arbitration Act does not expressly with situation where parties may wish to apply directly to the judicial courts for interim measures, including any urgent interim measures of protection that may be necessary before an arbitral tribunal can be constituted. The judicial courts in Brazil have jurisdiction to grant interim measures in support of arbitral proceedings both before and after the constitution of the arbitral tribunal. This means that any decision or order on interim measures issued by the arbitral tribunal is not enforceable. Only the final award is enforceable. Therefore, the arbitral tribunal may request any judicial court having jurisdiction to assist with enforcing such interim measures.

4 The autonomy of the arbitration clause is the basis of the principle of competence-competence, which is contained in Article 8 of the Brazilian Arbitration Act as follows:

"Article 8 – An arbitrator clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

Sole paragraph – It shall be up to the arbitrator to decide on its own motion or per request of the parties, the issues concerning the existence, validity and efficacy of the arbitration agreement and of the contract which contains the arbitration clause."

5 An arbitration agreement which is part of another agreement is treated as an independent and severable arbitration agreement. Therefore, the invalidity of the agreement containing the arbitration agreement will not automatically affect the validity of the arbitration agreement.

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.

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Authors
Walter Stuber
Adriana Maria Gödel Stuber
 
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