Superior Court of Justice rejects allegation of waiver of arbitration clause

April, 2012

Practice: Litigation and Arbitration

Brazil has become one of the jurisdictions that more respect arbitration, an alternative dispute resolution method by which parties decide to submit their conflicts to one or more third parties (arbitrator or panel of arbitrators), whose decision will be binding and whose merits will not be reviewed by the Courts.

Since the Supreme Federal Court declared the constitutionality of the Law 9,307/96, more than ten years ago, the number of arbitrations involving Brazilian parties strongly increases each year. The support that has been given by the Brazilian Courts is one of its main encouragements.

Recently, the Superior Court of Justice1 showed once more its respect for the parties’ choice of arbitration. In a joint venture contract between the Korean Asia Motors (now succeeded by Kia) and Brazilian companies, governed by the Brazilian law, the parties decided that conflicts that might arise between them would be settled by arbitration in New York, under the rules of the ICC – International Chamber of Commerce. Later, following what they had agreed upon in the agreement, parties established the corporate charter of the Brazilian company, witch was going to manufacture and sell cars of the Korean trademark in Brazil, and signed a shareholders’ agreement. The corporate charter did not had any reference to arbitration (it was prior to inclusion of paragraph 3rd to article 109 of Law 6,404/76, which allows its inclusion in such a document) and the shareholders’ agreement provided for choice of the Courts of São Paulo and also ICC arbitration for certain issues.

During the contractual relationship, the foreign shareholder requested a preliminary injunction before the Courts of Bahia for the suspension of the effects of a deliberation, in a shareholders’ meeting, for capital increase of the Brazilian company. Forthwith, it filed a lawsuit to declare such deliberation null and void. In both suits claimant stated that it did not waived the arbitration clause ant that the judicial proceedings were started only due to the urgency of the situation.

Later, the foreign shareholder started an arbitration proceeding in New York, in order to settle several disputes with the other parties of the joint venture agreement. The arbitrators rejected the plea of lack of jurisdiction, which was argued by the claimed parties on the grounds that the arbitration clause was waived by the approval of the corporate charter of the Brazilian company, the execution of the shareholders’ agreement or the commencement of lawsuits before the Courts of Bahia.

The arbitral tribunal seated in New York ordered the Brazilian parties to pay an indemnification and the Korean shareholder moved with a proceeding for the recognition of this foreign award before the Superior Court of Justice. A foreign judicial or arbitral judgment is only effective and enforceable in Brazil after such recognition (homologação) by the Superior Court.

It was argued before the Court that there was no longer a valid arbitral in force between the parties, on the same grounds argued before the arbitrators. The Superior Court of Justice decided that, although being rejected by the arbitrators, such issue should analyse this claim again, since lack of jurisdiction is one of the grounds for refusal of recognition and enforcement of a foreign judgment, as set forth in items IV and V of the article 38 of Law 9,307/96.

However, the Court decided that “it is not possible to deny the arbitral convention”, instituted in the joint venture agreement “by means of an expansive clause the set the competent venue to solve all future controversies between the parties, including the issues in debate, on the grounds of an alleged tacit waiver or substitution of the clause”. Besides that, “once expressed the desire to establish, by contract, an expansive arbitral clause, the waiver shall be made through an equal express declaration from the parties, and it is not enough, for its recognition, a mere reference to acts or agreements that did not have the intention to exclude the parties’ commitment”.

In the present case, it was understood that the joint venture agreement would be “the mother cell of all others”, since it expressly stated that its goal was to “provide the rules that would govern the relationship of the parties in the company, which would be financed and managed in accordance with the terms and conditions established in this agreement, in the corporate charter of the company and in the shareholders’ agreement”. In this context, the non-repetition of the arbitral clause in one of these documents, and a provision for less extent arbitral clause in the other, would not amount to a waiver of the arbitral venue.

Therefore, finding that the arbitral clause was kept in its full force, despite of the later shareholders’ agreement, corporate charter and the judicial actions, it granted the Korean shareholder’s request for recognition of arbitral award. It refused, however, recognition of the part of the award that dealt with the issue that had been submitted to the Courts of Bahia, but only because the judicial proceedings had already finished and the judicial decision was already final (res judicata).

Such decision was rendered by the Special Panel, the widest panel of judges of the Superior Court of Justice, and reinforces the pro-arbitration position of the Brazilian Courts. Foreign investors that fear facing the usually slow-pacing Courts of the country should rely that their choice for arbitration will be respected in Brazil.

1 SEC no. 1, tried between 28 April 2011 and 19 October 2011. Decision published on 1st February 2012, with Judge Maria Thereza de Assis Moura as Reporter.

Olympio J. M. L. de Carvalho e Silva
Lawyer of Castro, Barros, Sobral, Gomes Advogados
Master of International Law by UERJ – Universidade do Estado do Rio de Janeiro
LL.M in International Business Law by LSE – London School of Economics and Political Science