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Brazilian Superior Court of Justice: ongoing Brazilian proceedings challenging validity of arbitration clause do not prevent recognition of foreign judgment acknowledging validity
Practical Law Legal Update 0-505-4851 (Approx. 4 pages)
Brazilian Superior Court of Justice: ongoing Brazilian proceedings challenging validity of arbitration clause do not prevent recognition of foreign judgment acknowledging validity
| Published on 31 Mar 2011 • Brazil, International |
Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate) and Débora Auler de Almeida Prado (Associate), Mattos Filho Advogados
In a decision dated 16 February 2011, the Superior Court of Justice overruled a preliminary injunction suspending the recognition of a foreign judgment that acknowledged the validity of an arbitration clause. This was on the ground that an ongoing lawsuit in Brazil challenging the validity of the same arbitration clause is not enough to prevent the recognition and enforcement of the foreign judgment.
Background
The Brazilian Arbitration Act 1996 (Law No. 9307/96) (BAA) contains the following relevant provisions:
- An arbitration clause inserted in adhesion contracts (standard form contracts) will only be valid if the adherent party (weaker party) takes the initiative to commence the arbitration or expressly consents to it by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type (Article 4, paragraph 2).
- In order to be recognised or enforced in Brazil, a foreign arbitral award is solely subject to the ratification of the Brazilian Superior Court of Justice (STJ) (Article 35).
Article 517 of the Code of Civil Procedure provides that issues of merits not previously raised before lower courts may not be considered on appeal, except where such issues were not raised due to a force majeure event.
Facts
The dispute concerns a claim before the STJ for the recognition of four foreign judgments recognising the validity of arbitration clauses in international trade contracts, thereby requiring the parties to submit their dispute to arbitration.
The foreign judgments rendered by the US District Court for the Southern District of New York not only recognised the effectiveness of the agreement to arbitrate, but also granted a preliminary injunction ordering the Brazilian company (respondent in the arbitration) to give up its claim regarding the invalidity of the arbitration clause before the Brazilian courts. However, the respondent did not withdraw its claim, which is still ongoing.
At first instance, the Lower Court of Porto Alegre had found that the arbitration clause was valid and the lawsuit was quashed without judgment on the merits. However, the State of Rio Grande do Sul Court of Appeals overruled that decision. It found that the arbitration clause was invalid: the contracts were adhesion contracts (standard form contracts) and the arbitration clause was not properly highlighted, as required by Brazilian arbitration law in order to be valid.
The claimant, GE Medical Systems Information Technologies INC, lodged a special appeal (Recurso Especial) before the STJ against that decision, alleging that the adherent (standard form) nature of the contracts is an issue of merits that was not raised before the lower court and, therefore, it could not have been used as a ground to the Court of Appeals' decision. The special appeal was not admitted by the STJ, and as a last resort, the claimant appealed the decision (Embargos de Divergência).
On the basis that the Brazilian courts had not yet determined the validity of the arbitration clause, the respondent applied to the STJ for recognition of the foreign judgments to be suspended pending its judgment on the decision of the Embargos de Divergência on special appeal. The suspension was granted by Minister Luiz Fux on the ground that if the arbitration clause is held to be invalid by the final decision on the special appeal, the recognition of the foreign judgments would be impaired.
The claimant appealed the decision, alleging that the ruling on the validity of the arbitration clause should be a matter for the arbitrators and not the Brazilian courts (according to the kompetenz-kompetenz principle).
Decision
The STJ overruled the injunction suspending the recognition of the foreign judgments on the following basis:
- The existence of a legal claim in Brazil dealing with the same object of a claim already ruled upon by a foreign judgment does not impair the recognition of the foreign judgment by the Brazilian courts.
- Since the Embargos de Divergência on special appeal's decision might not be the final word on the validity of the arbitration clause, there is no reason to suspend the enforcement of the foreign judgments until the issuance of such decision.
The decision also mentioned that the filing of a lawsuit challenging the validity of the arbitration clause does not impair the recognition of the foreign arbitral award, in which the validity of the arbitration clause was confirmed.
Comment
It may be anticipated that the STJ's decision to proceed with the recognition of the foreign judgments can also affect the request for recognition and enforcement of the related arbitral award, currently in course before the STJ, which was on the same grounds suspended by a preliminary injunction (SEC N. º 853).
The recognition of a foreign judgment or arbitral award should not be suspended due to a lawsuit in course in Brazil with the same object. This fact is related to the merits of the recognition and should be analysed during its judgment. It does not justify the suspension of the recognition of a foreign judgment or arbitral award.