Sebastian Perry
Friday, 11 June 2010
Weeks after the ICCA Congress showcased the sophistication of the Brazilian arbitration market, an unexpected decision by a São Paulo court this week has left local practitioners aggrieved.
São Paulo's state-owned underground rail operator, Metrô, won a preliminary injunction on Monday against an ICC tribunal hearing its dispute with the Via Amarela consortium over costs associated with the construction of a new line. In a decision roundly condemned by observers, the court said there was a public interest in the case and ordered the tribunal to widen the scope of the expert evidence it is considering.
"This decision represents a huge act of interference by the courts in the arbitration proceedings, and if it prevails it's going to send Brazil back to the Stone Age of arbitration," warns Marcelo Ferro of Ferro, Castro Neves, Daltro e Gomide Advogados, counsel to Via Amarela. "There are a number of strong precedents in Brazilian law stressing that courts cannot interfere in arbitrations. This is an isolated decision by a single judge in a state court, who has not heard our arguments. We are confident that it will be overruled."
Metrô initiated the arbitration in 2007 after Via Amarela adopted a tunnelling method that had not been agreed in the original contract. A disputes board of engineers put the additional cost at around US$100 million but its conclusions were non-binding.
The arbitral tribunal, seated in Brazil, considered geological expert evidence but refused Metrô's request to also consider testimony from engineering experts. The panel issued a partial award in July 2009, calling for the parties to agree on the appointment of an accountant to evaluate the exact amount the consortium should collect.
Eduardo Damião Gonçalves, a partner at Barretto Ferreira Kujawski Brancher e Gonçalvesand former head of the Brazilian Arbitration Committee, CBAr, says, "This is indeed a bad decision that shows how important it is to work continuously with judges, particularly lower-level judges who are still not very acquainted with the specifics of arbitration."
Gonçalves says the decision ignores at least two important precedents from Brazil's Superior Court of Justice, which rules on the majority of arbitration matters. They include AES v CEEE, "in which the judges recognised the arbitrability of matters involving state-owned entites and therefore that all principles of arbitration should apply".
"Brazilian courts have been systematically refusing to interfere in arbitration proceedings and this court should have done the same. As Emmanuel Gaillard has said, anti-arbitration injunctions are a plague that we have to fight," Gonçalves adds.
Fernando Mantilla-Serrano, a Colombian lawyer in Shearman & Sterling LLP's international arbitration practice in Paris, agrees that "this is an interim decision that may well be overturned on appeal, and does not reflect the actually rather positive stance of Brazilian courts towards arbitration."
He continues, "I have recently been involved in an arbitration in which the São Paulo courts were called to order interim measures in a pending arbitration. The judge in that case showed great deference to the tribunal, modifying the interim measures when new facts emerged and expressly stating that the measures were subject to confirmation or modification by the tribunal. I am therefore convinced that this latest decision can be considered an anomaly."
Roberto Castro de Figueiredo, of Sergio Bermudes Law Firm in Rio de Janeiro, says the issue hinges on whether arbitrators are viewed as public authorities. "Those in favour of injunctions against arbitral tribunals argue that a writ of mandamus may be granted not only against the acts of public authorities but also against the acts of those who act on behalf of public authorities, and that given the jurisdictional nature of arbitration, the arbitrator ought to be considered as exercising a public authority."
Alfredo De Jesús O, an associate at K&L Gates LLP in Paris and secretary general of the Venezuelan Arbitration Committee, says such injunctions constitute "one of the most important threats to the development of international arbitration in Latin America" but notes that Brazilian law does not allow arbitration associations like CBAr to submit amicus curiae briefs in such cases.
According to commentators the tribunal is not bound by this decision as far as arbitration law is concerned, but would risk being in contempt of court if it failed to observe it. After consultation with the arbitrators, Ferro confirms that they intend to abide by the decision while Via Amarela seeks its reversal. "I see this as a long-haul flight from Moscow to Rio - we may have to make a deviation because of a volcano, and there will be turbulence, but at the end of the day we're all going to land safely."
Metrô is understood to have filed another lawsuit with a different São Paulo court last week calling for a suspension of the whole arbitration, which was refused. Metrô's counsel declined to comment.
Via Amarela is a consortium made up of leading Brazilian industrial conglomerates Odebrecht, OAS, Queiroz Galvão, Camargo Corrêa and Andrade Gutierrez, together with France's Alstom.
ICC tribunal
· Carlos Alberto Carmona (President)
· Maria Sylvia Zanella di Pietro (appointed by Metrô)
· Gustavo Binenbojm (appointed by CVA)
Counsel to Consórcio Via Amarela
· Ferro, Castro Neves, Daltro e Gomide Advogados
Partner Marcelo Ferro, Alice Moreira Franco and Eduardo Pecoraro
· Manesco, Ramirez, Perez, Azevedo Marques
Partner Floriano de Azevedo Marques
Counsel to Companhia do Metropolitano de São Paulo (Metrô)
· Rodrigues Barbosa, Mac Dowell de Figueiredo, Gasparian - Advogados
Partner Samuel Mac Dowell de Figueiredo
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