Reconhecimento de sentenças arbitrais estrangeiras x processos judiciais no Brasil
This paper analyses an alternative that a defendant may take to overcome a litigation in Brazil in breach of a foreign arbitration clause: to commence arbitration abroad and, once the award is issued, seek to have it recognised in Brazil, so as to strike down the Brazilian litigation. It is of particular interest to maritime law cases.
Este artigo analisa uma alternativa que um réu pode adotar para pôr fim a um processo judicial ajuizado no Brasil em descumprimento a uma cláusula arbitral estrangeira: iniciar arbitragem no exterior e, quando prolatada a sentença arbitral, buscar o seu reconhecimento no Brasil, de forma a obter a extinção do processo brasileiro. É questão de especial interesse em casos de direito marítimo.
Keywords: Litigation. Brazil. Arbitration. Recognition. Maritime.
Palavras-chave: Litígio. Brasil. Arbitragem. Reconhecimento. Marítimo.
There are many lawsuits brought before the Brazilian courts in breach of arbitration clauses. One frequent example is maritime cargo claims brought by subrogated Brazilian insurers (many of them subsidiaries of large international groups), despite bills of lading and/or charterparties that provide for arbitration abroad.
Brazilian courts have been taking a pro-arbitration stance for a long time, but there are still uncertainties in some areas as to whether the courts will respect the arbitration clause. Taking the same example above, the issue concerning whether subrogated insurers are bound by the arbitration clause in the underlying contract has not yet been decided by the Superior Court of Justice1.
Further to that, it may take many years before a lawsuit comes to an end by referring parties to arbitration. Using the same example once more: the discussion above started more than 10 years ago2, and there is a large number of lawsuits dealing with this point of law, but there is no settled position from the Brazilian courts yet.
On the other hand, international arbitrations are usually much quicker, and parties can normally rely with more certainty on the tribunal’s ability to recognise the validity of the arbitration clause and its own jurisdiction.
Bearing this in mind, this paper will analyse an alternative that a defendant may take to overcome a litigation in Brazil in breach of a foreign arbitration clause: to commence arbitration abroad and, once the award is issued, seek to have it recognised in Brazil, so as to strike down the Brazilian litigation.
2. Overview of the proceeding for recognition of foreign arbitral awards in Brazil
A foreign court judgment or arbitral award can only be enforced in Brazil (by a first-instance court), or even be taken into consideration by the Brazilian courts for almost any other purpose, after it is recognised by the Superior Court of Justice3. This is a federal appellate court located in Brasília whose more regular function is to try appeals on points of law against judgments from the several different Brazilian state and federal Courts of Appeal4.
The Superior Court of Justice recognises judgments from all countries of the world, even when there is no treaty nor reciprocity. The1958 New York convention on recognition and enforcement of foreign arbitral awards came into force in Brazil only in 2002, but the Arbitration Act 1996 contained very similar provisions applicable to any foreign award from any nation. A foreign award is deemed to be one issued in a foreign country5.
The court does not analyse the merits of the foreign judgment, and it interprets “merits” for this purpose in a very broad fashion. Further, it interprets very narrowly the requirement of inexistence of “manifest offense to public policy in the foreign judgment ” (article 963(IV) of the Civil Procedure Code6). As a result, only in very few (and more extreme) cases the court denies recognition to a foreign judgment.
Recognition proceedings can be tried by a single justice or, when he or she understands that complexity requires a panel judgment, trial is taken by the highest panel of the Superior Court of Justice (the Corte Especial), comprising the 15 justices that have been sitting in the court for longer, and are therefore normally the most experienced ones. Single judgments in recognition proceedings can, in any case, be appealed to this panel.
Further, it is possible to appeal to the Supreme Court in case the aggrieved party can argue that the Federal Constitution was violated by the judgment, but this rarely happen and we are not aware of any such appeal against the recognition of a foreign award that has ever succeeded.
Although the Superior Court of Justice is overwhelmed with cases and is seldom fast, this path is normally much shorter than a litigation that commences before a 1st instance court, with possibilities of appeals to the respective Court of Appeal, then to the Superior Court of Justice (and sometimes appeals within the Court itself, because the high panel mentioned above is seldom involved in regular cases), and the Supreme Court.
3. Effects of the recognition of a foreign arbitral award in relation to litigation pending before the Brazilian courts
The Brazilian Civil Procedure Code gives no effect to parallel proceedings (lis pendens) before foreign courts7. It means that a lawsuit pending before a foreign court does not prevent the Brazilian courts to try a lawsuit filed later on dealing with the same issue(s). In fact, there is no discretion at all: the Brazilian courts have to try the Brazilian suit as if the foreign suit did not existed8.
Although this rule does not expressly apply to foreign arbitration proceedings, the Superior Court of Justice has held that it does so. One of such cases was SEC 349/JP, in which the court denied an application to stay a recognition proceeding of a foreign award potentially incompatible with a Brazilian judgment issued a few years before, in a lawsuit that was commenced in Brazil before, which had been appealed (then pending before the Superior Court of Justice, after having passed by a Court of Appeal).
In such case, the Superior Court of Justice cited a famous opinion of the well praised scholar and former judge Barbosa Moreira, holding that both lawsuits (the recognition proceeding and the Brazilian suit) should move forward (i.e., neither should be stayed), and that the one which reaches its end first, with a final res judicata judgment9, will prevail in relation to the other one:
“Suppose, for example, that such proceeding [the foreign arbitration or court proceeding] reaches its end before the one commenced before our courts, and that the interested party applies here for the recognition of the foreign judgment; if this proceeding is allowed, and such judgment becomes final while the proceeding commenced here is pending, the latter will no longer be able to move forward, because with the recognition, the foreign judgment now has the authority of res judicata. The Brazilian judge will have, ex officio or upon request of a party, to terminate the lawsuit without trial of its merits (…).
Summing up: the irrelevance of the alien proceeding means that its existence, even if initiated previously, does not constitute an obstacle to the exercise of the national court’s powers to settle the dispute. This activity will be performed normally, and, when finished with issuance of the judgment, the respective act of its becoming res judicata will prevent, in final terms, any repercussion in the national territory, of the outcome reached in the other country (…)”10
This has been the settled position of the Brazilian courts for a long time before the precedent mentioned above (issued in 2007), and continued to be afterwards11.
However, in 2013, a different approach was taken by the Superior Court of Justice in SEC 854/US. This was an unusual case, in which the court recognised part of a New York court judgment that had declared the arbitration clauses in 2 agreements to be valid and had compelled parties to arbitration, in spite of the fact (which was duly considered) that the Brazilian courts had previously held that such clauses were null and void, in a judgment that had become res judicata in the previous year.
The main fact that this judgment took into consideration was that the arbitration proceeding had become res judicata many years before, in 200312. In addition, consideration was also given to other circumstances, including: (a) that it was an international contract executed in US under US law with a US company (implying that the Brazilian court erred when it declared them to be null and void due to Brazilian law requirements), (b) the principle of competence-competence (it found that the New York court had decided in accordance with the principle and implied that the Brazilian court had wrongly not done so), (c) that denying recognition could encourage Brazilian parties to bring groundless suits in Brazil to procrastinate foreign arbitration proceedings, thus harming the equality of the parties and jeopardising “the credibility of the execution of arbitration clauses by national [Brazilian] parties” and “also the national commerce itself”.
The court might also have taken into consideration the fact that trial of this recognition proceeding started in 2006 and was delayed for many reasons until the final decision in 2013, especially motions for stay brought by the Brazilian party. These were ultimately denied for the same reasons mentioned a few paragraphs above, but managed to delay the case anyway. Further, the court seemed to have seen as procrastinating tactics the fact that the Brazilian parties brought 2 proceedings, in Brazil and in US, to try to stay the arbitration and/or have the arbitration clauses declared null and void, prior to the arbitration award being issued, instead of trying to raise its arguments before the tribunal. In fact, it is highly unusual, in the cases analysed by the Superior Court of Justice, that so much (and parallel) litigation is brought by a party resisting arbitration. Finally, the outcome of the Brazilian suit appears to be wrong, but the Superior Court of Justice could not hear the appeal brought by the US company against it due to procedural failures, which apparently may have been a factor that also played a role in this judgment.
At this point it is not clear whether this was a case which should properly be viewed as a decision on its own facts, or whether it is a precedent to be followed in the future, specially because one the Superior Court of Justice later denied recognition to the arbitration award itself, in a decision rendered this year by a single justice which has been appealed to the full highest panel of the court13. Further, in 2015 a new Civil Procedure Code was enacted, and it expressly provides, as requirement for recognition of a foreign judgment, that it does not violate a Brazilian res judicata judgment (article 963(IV)).
In any case, it shows the pro-arbitration stance taken by the Superior Court of Justice.
4. The alternative proposed in this paper to a defendant facing a lawsuit in Brazil in breach of an arbitration clause, and a good example of its potential outcome
As shown in chapter 2, having a foreign judgment recognised in Brazil is a much shorter path than defending a litigation started before a first instance court. As a result, it is very likely that a judgment recognising a foreign award will become res judicata much before a judgment that terminates a lawsuit by referring parties to arbitration (or refusing to do so) reaches such stage.
Even adding a couple of years to cope with the arbitration proceeding abroad, the 1st route is likely to take less time, as Brazilian litigation can take many years14.
A good example to encourage carriers to follow this path in appropriate cases is the recent judgment of the Superior Court of Justice in SEC 14,930/EX15. This was not a maritime case, but involved the same situation faced by many carriers in Brazil: a litigation brought in Brazil by a Brazilian subrogated insurer in breach of the arbitration clause in the underlying contract.
In this case, defendant commenced arbitration in Miami against the insurer, and obtained an award declaring that the insurer was bound by the arbitration clause, as a matter of Brazilian law (which governed the underlying contract), and also that it was not obliged to indemnify the insured nor its insurer for what was claimed in the Brazilian lawsuit.
The insurer fiercely argued, before the tribunal and later before the Superior Court of Justice, that it was not bound by the arbitration clause. After much debate, the Court decided, by majority (9 to 3), to recognise the award on grounds that it had not manifestly violated public policy, and so its merit could not be re-analysed by the Court. It held that it is not clear, under Brazilian law, whether an insurer is or not bound by the arbitration clause of the underlying contract executed by the insured (because there are conflicting opinions from scholars and the courts have not settled the controversy), and thus there is no “absolute incompatibility” between the award (whether it be right or wrong) and a “fundamental rule of the national legal system”.
The whole proceeding before the Superior Court of Justice took 4 years until the judgment became res judicata, which was longer than usual, because the novelty and importance of the issue led to a judgment that took 6 trial sessions (instead of the usual one), and the insurer also attempted to appeal to the Supreme Court. The Brazilian lawsuit, in any case, had commenced 5 years before and had not even reached a 1st instance judgment.
It also shows how reluctant the Superior Court of Justice is to deny recognition to a foreign judgment, and its pro-arbitration stance. As to the latter, one of the majority justices, Nancy Andrighi, issued a written concurring opinion that went further and also held, as obiter dictum, that subrogation transfers the arbitration clause to the insurer, who is therefore bound by it16.
Commencing an arbitration abroad and having the award later recognised in Brazil may be an advisable strategy to overcome a lawsuit in Brazil in breach of an arbitration clause, especially when the prospects of the arbitration in its proper forum are good and/or it is not clear whether the Brazilian courts will give effect to the arbitration clause.
* Partner at Castro Barros Advogados and head of its Maritime and Transport department. He holds a Master of Laws (Mestrado em Direito) in International Law from UERJ – Universidade do Estado do Rio de Janeiro (2011), and Master of Laws (LL.M) in International Business Law from LSE – London School of Economics (2006), among other degrees. Contact: firstname.lastname@example.org, +55 21 2132 1855.
1 Although a recent judgment, that will be dealt in the last chapter of this paper, may indicate that the pro-arbitration stance is likely to prevail in relation to this issue too.
2 There is at least one case started in 2008 in which this issue was raised: lawsuit no. 9108101-03.2008.8.26.0000 It was a litigation that only finished more than 6 years later, when the last appeal from the subrogated cargo insurer against the judgment that ordered parties to resort to arbitration in London was finally tried. The Superior Court of Justice refused to hear the merits of this last appeal, however, on procedural grounds.
3 There are a few exceptions in which a simpler procedure is applicable, as the one provided for in the Las Leñas Protocol between the countries that are member to Mercosul.
4 So as to harmonise the interpretation of the federal law, which comprises the bulk of Brazilian law, including civil, commercial (maritime included) and procedural law (arbitration included).
5 Article 34, sole paragraph, of the Arbitration Act 1996 (Law 9,307/96).
6 This is in fact a more narrow ground than the one provided for in article V(2)(b) of the New York convention, which does not contain the adjective “manifest”
7 Article 24 of the Civil Procedure Code 2015, which states that exceptions could be provided for in international treaties signed by Brazil.
8 It does not mean that absolute no effect can be given to foreign proceedings. One of the very few examples to the contrary is REsp 1,090,720/RJ, in which the Superior Court of Justice held that a party that a Brazilian party that had started and lost a judicial proceeding in London, pursuant to an alternative choice of court clause that provided for London or Rio de Janeiro, could not repeat it in Brazil, because this would be a violation to good faith.
9 Under Brazilian civil procedure law, this means an unappealable judgment, i.e., one that has no possibility to be further reviewed by the same court or a higher one. There may still be, however, the possibility of bringing an ação rescisória, a remedy available to rescind a final res judicata judgment in very limited circumstances, within 2 years from the date the judgment became unappealable. This is a separate proceeding that is very rarely attempted, and even more rarely succeed, so this paper will not deal with it.
10 Temas de direito procesual, Saraiva, São Paulo, pages 38/43, as cited in the opinions of three Justices in the judgment of SEC 349/JP by the Superior Court of Justice.
11 E.g., SEC 1/KR, tried on 19 October 2011.
12 The judgment also mentions that the arbitration commenced before such Brazilian suit, but apparently without giving much weight to this fact, probably because they were just one month apart from each other.
13 SEC 853/US. Please note that SEC 854/US was decided by majority vote of 7 x 1, and the other 7 justices that take part of this panel were not present at trial.
14 The average timeframe is 4 years and 10 months, according to a research released this year by the Conselho Nacional de Justiça, which oversees the Brazilian court system, when analysing data of 2018, available at https://www.cnj.jus.br/wp-content/uploads/conteudo/arquivo/2019/08/8ee6903750bb4361b5d0d1932ec6632e.pdf (accessed on 18 November 2019). However, the majority of the cases before the Brazilian courts are much simpler than the ones dealt with by the maritime and other commercial lawyers that are the probable readers of this paper, and complex cases are likely to take longer. It is not unusual that more than 10 years can pass in certain more extreme situations before a final outcome.
15 It became available on 27 June 2019. The case involved Mitsui Sumitomo Seguros S/A, the Brazilian subsidiary of the Japanese insurance group, which indemnified a Brazilian insured and subrogated the insured’s claim against a company within Alstom group, related to damages arising out of malfunction of industrial equipment. Mitsui then commenced litigation against Alstom before the Brazilian courts.
16 It is hard to know whether the other 8 majority justices agree with Mrs. Andrighi’s obiter dictum, but it was well reasoned and 6 of them cast their opinion to recognise the award in the same trial session right after Mrs. Andrighi’s opinion. Moreover, the Federal Public Prosecutor Office has submitted in this case its position that the term “right and actions” contained in article 786 of the Civil Code should be read as allowing the insurer “to bring the same action that the insured could bring”, so that the insurer is bound by the arbitration clause of the underlying agreement. Thus, this judgment may be a good indication that the pro-arbitration approach of the Brazilian courts will prevail in relation to this issue too.