Volume 4, Number 32, Page 2

Brazil: Foreign Arbitration Awards May Be Enforced Domestically

by Nadine S. M. Baleeiro Teixeira and Mark D. Hobson

On September 23, 1996, a new law was promulgated in Brazil offering arbitration as an effective mechanism for settling contractual disputes between private parties. Law No. 9.307 allows parties capable of contracting to agree to arbitration for the pur pose of resolving contractual disputes. The arbitration’s subject matter can involve material or immaterial assets, rights, possessions, or anything else that is susceptible to economic valuation. Parties that have selected arbitration are free to de cide on the following items governing the arbitration:

• applicable law (including equity or general principles of law, usages, customs or private international law);
• arbitrators;
• rules of the arbitration;
• allocation of arbitration costs; and
• time limit for the arbitration sentence to be rendered.

The parties can also choose to delegate these decisions to an arbitration institution. Law No. 9.307 distinguishes between foreign and domestic arbitration. An arbitration award pronounced outside the national territory of Brazil will be considered &q uot;foreign." A foreign arbitration award can now be enforced in Brazil. The award is first confirmed by a court of competent jurisdiction in the country where the award was rendered, as previously required. In order to have a foreign arbitration aw ard enforced by the appropriate court in Brazil, the award only needs to be ratified by the Federal Supreme Court. For this purpose, the interested party should file with the Federal Supreme Court a petition and the necessary documentation (including the original arbitration award or certified copy thereof, which must be authenticated by a Brazilian Consulate, and an official translation).

The Federal Supreme Court will deny ratification of a foreign arbitration award if the defendant substantiates any of the following:

• the parties lacked capacity;
• the written agreement to arbitrate was invalid according to the law to which the parties agreed to submit the agreement or, if none was selected, according to the law of the country where the arbitration award was pronounced;
• the Brazilian party was not notified of either the designation of the arbitrator or the commencement of arbitration proceedings, or the arbitration violated the party's right to defense;
• the arbitration award exceeded the limits of the arbitration agreement, and it is impossible to separate the excessive portion from that which was validly determined;
• the arbitration was at variance with the parties’ written agreement to arbitrate;
• the arbitration award has yet to become binding on the parties or has been annulled or suspended by a court in the country where the arbitration award was pronounced;
• the subject matter is incapable of being resolved by arbitration under Brazilian law; or
  the decision violates the national public order.

One of the more significant features of Law No. 9.307 is that it explicitly allows service of process on the Brazilian party to be consummated by registered mail (with proof of receipt), provided such party has adequate time to exercise its right of de fense. Service by mail, if properly accomplished, will not be considered a violation of the national public order. Prior to this new law, if the defendant resided or was domiciled in Brazil, proper service was only by letter rogatory, which was a time-con suming process.

A foreign arbitration award that has been ratified by the Federal Supreme Court is considered an extra-judicial title, which entitles the petitioner/foreign party to file an execution action.

Domestic arbitration, on the other hand, is subject to different procedural rules. Under Law No. 9.307, a "domestic" arbitration accord (convenção de arbitragem) is described as consisting of both a general arbitra tion clause (cláusula compromissória), which can be broadly defined as the parties’ express agreement to submit any prospective dispute to arbitration, and an arbitration commitment (compromisso de arbitrar).

The general arbitration clause must be in writing and can be included in either the contract or a separate document that refers to the contract. If the general arbitration clause is included in an adhesion contract (a "take-it-or-leave-it" co ntract), arbitration will be valid only if the weaker party initiates arbitration or expressly agrees to its institution, provided the agreement is in writing in an attached document or is in bold print and the clause has been signed or initialed.

The arbitration commitment is essentially the parties’ written confirmation to submit their existing dispute to arbitration as previously agreed upon in the general arbitration clause, and can be done either judicially or extra-judicially. If neit her party resists executing the arbitration commitment, it will be classified as an extra-judicial arbitration commitment.

However, if one of the parties is uncooperative despite having previously executed a general arbitration clause, the initiating party can seek specific performance of the prior agreement to arbitrate (i.e., obtain a judicial arbitration commitment). In such a case, the interested party may petition to have the other party summoned to appear in court in order to officially effect the arbitration commitment. For this purpose, the judge will initiate a special hearing.

At this hearing, the judge will first attempt to convince the parties to amicably settle their dispute. If this proves unsuccessful, the judge will attempt to assist the parties to reach a mutual agreement on the arbitration commitment. If the parties cannot agree to the terms of the arbitration commitment, the judge, after hearing the defendant, will issue a decision on the content of the arbitration commitment. The judge’s decision will be issued within 10 days of the hearing and must be in comp liance with the applicable dispositions under Law No. 9.307.

The preceding review of Law No. 9.307 is merely cursory and should not be construed as legal advice. Any party contemplating the insertion of a general arbitration clause into a contract with a Brazilian party or the execution of a foreign arbitration award in Brazil should carefully examine the law in order to ensure that all of the requirements are fully satisfied.

Nadine S. M. Baleeiro Teixeira and Mark D. Hobson are attorneys with the Brazilian law firm of Felsberg & Asociados.