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Brazilian Superior Court of Justice recognises AAA foreign arbitral award to be enforced against non-signatory Brazilian party
Practical Law UK Legal Update 9-520-7185 (Approx. 4 pages)
Brazilian Superior Court of Justice recognises AAA foreign arbitral award to be enforced against non-signatory Brazilian party
by Practical Law
| Published on 02 Aug 2012 • Brazil |
Eduardo Damião Gonçalves (Partner), Flávio Spaccaquerche Barbosa (Associate) and Diego Nocetti (Associate), Mattos Filho Advogados
In a decision regarding recognition of a foreign arbitral award, the Brazilian Superior Court of Justice (STJ) decided that the arbitral tribunal presiding over proceedings held under the American Arbitration Association rules in New York had jurisdiction over a non-signatory subsidiary of the respondent. This is a rare example of the STJ making a decision expressly based on the New York Convention.
Background
Article V(1)(a) of the New York Convention provides:
"1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made."
Article 38, II, of the Brazilian Arbitration Act (Law 9.307/96) provides:
"The request to recognise or enforce a foreign arbitral award will only be denied if the respondent demonstrates that: II – The arbitration agreement was not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was rendered."
Article 12 of the American Arbitration Association (AAA) Rules provides:
"Any party may be represented in the arbitration. The names, addresses and telephone numbers of representatives shall be communicated in writing to the other parties and to the administrator. Once the tribunal has been established, the parties or their representatives may communicate in writing directly with the tribunal."
Article 25 of the AAA Rules provides:
"A party who knows that any provision of the rules or requirement under the rules has not been complied with, but proceeds with the arbitration without promptly stating an objection in writing thereto, shall be deemed to have waived the right to object."
Facts
A dispute between Comverse, Inc (Comverse), based in Delaware, United States, and American Telecommunications Inc Chile (ATI Chile), based in Chile, arose out of an Agreement executed by the parties on 22 July 2004. The dispute was referred to arbitration under the AAA Rules. As ATI Chile shared contractual obligations with its subsidiaries in other Latin American countries, it submitted counterclaims in which such joint obligations were discussed and, as a consequence, a dispute arose as to whether the subsidiaries should be joined to the proceedings. Since Comverse and the ATI companies agreed that the inclusion should take place, the subsidiaries, including American Telecommunication do Brasil Ltda (ATI Brazil), participated in the proceedings and were represented by ATI Chile's lawyers, who were appointed by means of a letter to the arbitral tribunal, pursuant to Article 12 of the AAA Rules. Eventually, the final award ordered that ATI Brazil pay the sum of US$12,296,346.00 to Comverse.
Subsequently, Comverse applied for the recognition of the final award before the STJ. ATI Brazil resisted recognition on the ground that it was not a party to the arbitration agreement, which had only been signed by ATI Chile, and that the letter sent to the arbitral tribunal could not be interpreted as an acceptance by the ATI subsidiaries of the tribunal's jurisdiction or as a power of attorney granted to ATI Chile's lawyers. In addition, it argued that ATI Brazil would have been denied a fair opportunity to present its case due to its late inclusion in the proceedings.
Comverse replied that ATI Brazil was fully aware of the content of the letter by means of which it accepted the tribunal's jurisdiction, despite not being a signatory of the original arbitration agreement, and granted ATI Chile's counsel powers to represent it. During the proceedings, this letter was never questioned by ATI Brazil's legal representative, who was present in all hearings. Due process was fully observed, even though ATI Brazil joined the proceedings at a later stage and, moreover, as ATI Brazil did not object during the arbitration, it had waived its right to object under Article 25 of the AAA Rules.
Decision
The STJ granted Comverse's request for recognition. According to Reporting Justice Teori Albino Zavascki, ATI Brasil was validly represented by ATI Chile's lawyer, since the letter sent to the arbitral tribunal was sufficient under the AAA Rules to achieve that end and since Brazilian procedural rules could not be invoked by ATI Brazil to oppose that fact in an AAA arbitration in New York.
With that same letter, ATI Brazil joined that arbitration agreement and bound itself to the arbitral tribunal's jurisdiction, which was not disputed during the arbitral proceedings even though ATI Brazil's legal representative was present in all hearings of the arbitration.
Furthermore, the STJ understood that, under Article V(1)(a) of the New York Convention and Article 38, II, of the Brazilian Arbitration Act, recognition of an award will only be refused when the arbitration agreement is not valid under the law to which the parties subjected it or to the law of the seat (in this case, the AAA Rules under New York law). ATI Brazil had failed to provide evidence to that effect.
Finally, as ATI Brazil did not present an objection when it had the opportunity to speak in the proceedings, it waived its right to do so under Article 25 of the AAA Rules.
Therefore, the STJ unanimously ruled that the opposition to recognition was without merit.
Comment
This is one of the first decisions by the STJ to refer specifically to the New York Convention, although the Brazilian Arbitration Act sections on recognition of foreign awards are basically a translation of the Convention itself. The disputed issues were handled with technical and legal accuracy, without looking into the merits of the dispute and with a high degree of deference to the arbitrators' decision on jurisdiction and to the rules applied to the arbitration agreement.