A recent decision by the Superior Court of Justice (STJ) – Brazil's highest court in federal law issues and responsible for confirming foreign awards – may tip the balance in favour of Brazil as the seat of arbitration.
The STJ was called on to resolve a jurisdictional dispute between an International Chamber of Commerce (ICC) arbitral tribunal seated outside Brazil and a first-instance local court. The case stemmed from the termination of a distribution agreement between a foreign manufacturer and a local distributor.
When faced with a termination notice, the Brazilian distributor sought a pre-arbitral injunction before the local court to maintain the agreement in force until a panel of arbitrators appointed under the auspices of the ICC could resolve the merits of the dispute.
The first-instance court granted the injunction (later upheld by the state appellate court). As a result, the distribution agreement remained in force while the ICC tribunal heard the case. A final arbitral award was then rendered, essentially terminating the parties' contractual relationship and expressly revoking any existing pre-arbitral injunctions.
Notwithstanding the arbitrators' decision, the first-instance court refused to lift the pre-arbitral injunction, thereby keeping the distribution agreement in full force and effect. The local court argued that to be valid in Brazil, the ICC arbitral award must be confirmed by the STJ.
The STJ has initially sided with the local court, citing its own precedents that the efficacy of foreign awards depends on their homologation by the court.(1)
The case is still subject to appeal at the STJ. The manufacturer also has other procedural remedies to attempt a reversal of the situation, both at the STJ itself (a clearly pro-arbitration court) and at local court level.
However, while the case poses the interesting (and theoretical) question as to the effects of 'unconfirmed' foreign awards on pre-arbitral injunctions, this standstill would not have occurred had the parties previously elected Brazil as the venue for proceedings.
An award rendered in Brazil – irrespective of whether hearings occurred elsewhere or were conducted in a foreign language – removes the requirement for STJ confirmation or homologation before such an award can be enforced. In other words, a domestic arbitral award would immediately substitute any pending injunctions in aid of arbitration.
This type of pitfall during the confirmation of foreign awards indicates that parties should carefully consider the venue of arbitration at the outset of any contract negotiation. If one party is Brazilian, or holds significant assets in the country, selecting Brazil as the seat of proceedings may save time (and academic discussions) during enforcement of the final arbitral award.
For further information on this topic please contact Fernando Eduardo Serec or Antonio M Barbuto Neto at TozziniFreire Advogados by telephone (+55 11 50 86 50 00), fax (+55 11 50 86 55 55) or email (email@example.com or firstname.lastname@example.org). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.