Enter to open, tab to navigate, enter to select
Brazil Superior Court of Justice rules in favour of arbitration in public contracts
Practical Law UK Legal Update Case Report 5-513-9363 (Approx. 4 pages)
Brazil Superior Court of Justice rules in favour of arbitration in public contracts
by Practical Law
| Published on 01 Dec 2011 • Brazil |
Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate) and Diego Nocetti (Associate), Mattos Filho Advogados
In a decision rendered on 20 October 2011, the Brazilian Superior Court of Justice (STJ) affirmed the validity of a submission agreement executed following a dispute arising under a public tender contract. The STJ disregarded the respondent’s main argument that the submission agreement was invalid because arbitration was not provided for in the public request for proposals (PRFP).
Background
The following legislation is discussed in this update:
- The Public Tender Contracts Act 1993 (Law No. 8666/1993).
- The Brazilian Arbitration Act 1996 (Law No. 9307/1996).
Facts
The dispute involves Companhia Paranaense de Gás Natural (COMPAGAS), a state-owned company which distributes natural gas, and Consórcio Carioca Passarelli (CCP), a company incorporated to tender for an infrastructure project.
The PRFP did not mention arbitration as the dispute resolution mechanism, nor did the subsequent public tender contract contain an arbitration agreement. Nevertheless, when a dispute arose between the parties, both had consented to execute an agreement submitting it to arbitration.
An arbitral award was rendered in favour of CCP, and subsequently COMPAGAS initiated setting aside proceedings, which made their way to the STJ through a series of appeals.
Decision
Justice Nancy Andrighi of the STJ gave judgment in the case, and her decision was unanimously confirmed by the other justices, upholding the validity of the submission agreement executed after the public tender contract.
Justice Andrighi first noted that both academic commentary and case law recognise that there is nothing to prevent arbitration being chosen to resolve disputes with public entities. Arbitration agreements in PRFPs and public tender contracts are fully valid, especially when one of the parties is a mixed capital company, such as COMPAGAS.
After noting that the case was peculiar in the sense that arbitration was not provided for in the public tender contract, Justice Andrighi held that the submission agreement could not be considered invalid merely because it was not referred to in the PRFP or the public contract. This conclusion was based on a number of grounds:
- The Brazilian Arbitration Act allows for both types of arbitration agreements, the pre-dispute arbitration clause (article 8) and the post-dispute submission agreement (article 9).
- The principle of parties being bound to the terms of the PRFP (present in articles 3 and 41 of Law No. 8666/1993), aims at setting the rules and obligations of the public tender, allowing interested parties to know its main purpose and scope. The fact that the parties have chosen arbitral jurisdiction instead of state jurisdiction does not impair such principle, since the dispute resolution mechanism is not related to the core obligations of the public tender.
- The choice of court clause, albeit mandatory (according to article 55 §2), is not essential to public tender contracts, unlike object, obligations, price or payment condition clauses, amongst others. Therefore, choice of court clauses may co-exist with arbitration agreements. The former would refer issues such as interim measures or enforcement of the award to the appointed court, whilst the latter would refer patrimonial rights disputes to arbitrators.
- The respondent was estopped from arguing the invalidity of the submission agreement, which it had executed itself. The undue and unreasonable delay caused by such objection was harmful to the public interest of resolving disputes with the state efficiently and expeditiously.
Comment
With this case, the STJ has opened a precedent for companies who wish to choose arbitration, even if it is not provided for in the PRFP or the public contract. Therefore, this decision has broadened the scope of both the Brazilian Arbitration Act and the Public Tender Contracts Act. It has allowed arbitration not only in public-private joint ventures (the so-called "Parceria-Público-Privada" or PPPs) or public utility concessions, but has confirmed such possibility in contracts stemming from public requests for proposals, adding that post-dispute submission agreements are as valid as pre-dispute arbitration clauses.
The decision, although important for the development of public-related matters in arbitration, was not unforeseeable. This issue was recently debated at the Brazilian Arbitration Committee's 10th annual Arbitration Congress (see Legal Update, Brazilian Arbitration Committee hosts 10th annual Arbitration Congress). The STJ has therefore confirmed the judicial trend in favouring such use of arbitration in Brazil.