To be effective in Brazil, arbitral awards rendered abroad – deemed by our legal system as foreign awards – must be recognized by the Superior Court of Justice (STJ) according to the procedure set forth in Resolution No. 9/2005. On December 2, the STJ Special Court denied an application for recognition of a foreign arbitral award that had been declared null at the seat of the arbitration (SEC 5,782). The decision was unanimous and followed the vote of the case Rapporteur, Justice Jorge Mussi. This was the first time that the STJ Special Court addressed this subject. The application for recognition was made by the French company EDF International S/A and challenged by the Argentinean company Endesa Latinoamérica S/A and by the Spanish company YPF S/A.
The arbitration, seated in Argentina, was based on a dispute regarding the acquisition by the claimant EDF International S/A of shares held by the defendants in two other companies. The claimant initiated the arbitration seeking the review of the price of the shares based on a statement of the Central Bank of Argentina that extinguished the foreign exchange regime in force in that country (exchange rate parity between the US dollar and the Argentine peso).
The arbitral award, rendered in October 2007, was declared null by the courts of Argentina in December 2010 because it was based on equity, although there was no authorization from the parties for the arbitrators to decide that way. In Argentina, like in Brazil, arbitrators can only decide based on equity when this is expressly authorized by the parties and, in this particular case, the parties chose the application of the laws of Argentina. The decision to annul, rendered by the National Chamber of Commercial Appeals of the City of Buenos Aires and confirmed by Argentina's Supreme Court, has already become final and unappealable.
In his vote, the Rapporteur, Justice Jorge Mussi, mentioned the international treaties ratified by Brazil – such as the New York Convention of 1958 and the Las Leñas Protocol – in compliance with article 34 of the Arbitration Act, which states that the recognition of foreign arbitral awards must observe these laws. Under article V, paragraph 1, item "e" of the New York Convention, for example, recognition of the foreign arbitral award may be refused if the award has been set aside or suspended by a judicial authority of the country in which that award was made. The text of the New York Convention is in line with article 38, item VI, of Brazil's Arbitration Act, and the STJ used both of them as grounds to refuse the recognition.
The STJ reasoned that, according to international treaties and
Brazil's Arbitration Act, the foreign arbitral award must
become final and unappealable for its recognition to be possible in
Brazil. Additionally, it affirmed that the recognition procedure
neither grants effectiveness to the foreign award nor removes any
defects from decisions rendered by foreign States. Rather, it only
internalizes the effects of these awards in our country. Therefore,
the STJ Special Court concluded that, given that the award is null
in Argentina, it cannot produce effects and it is also null in
Brazil, which precludes its recognition.
The decision attests the position adopted by the Federal Prosecution Office (MPF) in SEC 5,782. In an opinion from November 26, 2012, the MPF had already expressed the position that the application for recognition should be denied because, having lost its effectiveness before the courts of Argentina, the foreign arbitral award will not produce effects in Argentina or in Brazil.
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.