Arbitration For Projects in BrazilFrom the Perspective of a U.S. Investor

Arbitration For Projects in BrazilFrom the Perspective of a U.S. Investor

Alden L. Atkins

October 20, 2011

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The Legal StructureThe Legal Structure

• Brazil has a modern arbitration law. (Law No. 9.307 (1996)

• Brazil joined the New York Convention in 2002– The NY Convention is a treaty among approximately

150 countries to facilitate the enforcement of international arbitration awards across borders.

– As a result, international arbitration awards are much easier to enforce across borders than court judgments.

• Brazil has not ratified any bilateral investment treaties.

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New York Convention Members and Non-MembersNew York Convention Members and Non-Members

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The Brazilian Courts’ Approach to ArbitrationThe Brazilian Courts’ Approach to Arbitration• Brazilian courts are generally enforcing

arbitration agreements and awards.– Particularly in commercial centers like São Paulo and

Rio de Janeiro.

• There are a small number of decisions refusing to enforce arbitration awards.– E.g., Inepar v. Itiquira, Court of Appeals of Paraná

(2008).

– These cases are the minority. Most local lawyers expect Inepar to be overturned.

– Other cases enforce arbitration agreements. E.g. Renault, Court of Appeals of São Paulo (2008).

– Brazil, like other civil law countries, does not recognize stare decisis. This means a Brazilian court is not required to follow prior decisions.

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Domestic vs. International Awards in Brazil

Domestic vs. International Awards in Brazil

• Awards from international arbitrations seated in Brazil:– They are considered domestic awards.

– They can be enforced like any other award from an arbitration in Brazil.

• A Brazilian arbitral award shall have the same effect on the parties as a judgment by a state court. (Arbitration Law Art. 31)

• International awards from arbitrations held outside of Brazil:– They are enforceable under the New York Convention.

– They must be homologated by the Superior Court of Justice (STJ).

– The STJ has adopted procedures to favor the recognition and enforcement of foreign arbitral awards.

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The Seat of the ArbitrationThe Seat of the Arbitration

• The seat is the legal location of the arbitration.– It is where the arbitration clause says the arbitration

will be held.

– Hearings can be held by agreement in other countries.

• The laws of the country where the seat is located will govern the arbitration. Local courts may be called upon to:– Resolve challenges to the arbitration agreement.

– Decide whether to issue a preliminary injunction or a provisional remedy.

– Decide whether the award complies with local law.

– Hear lawsuits to challenge or enforce the award.

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The Seat of the Arbitration [cont’d]The Seat of the Arbitration [cont’d]

• The choice of the seat is very important– Local law should favor arbitration.

– Local courts should enforce arbitration agreements and awards.

– The country should be a party to the New York Convention to facilitate enforcement of the award in other countries.

– Local culture and experience should support arbitration.

– Services to support arbitration (facilities to hold hearings, travel, photocopying, translators, court reporters).

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The Seat of the Arbitration [cont’d]The Seat of the Arbitration [cont’d]

• The seat may be different from the location of the project– For example, a Brazilian project may have an

arbitration with a London seat.

• Foreign investors often prefer:– A seat they consider more neutral.

– A seat where the arbitration law, practice and culture is favorable.

– A seat with established arbitration institutions (e.g., LCIA, ICC, ICDR, SIAC).

– A seat that is more convenient.

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Brazil Is An Acceptable Seat for An Arbitration.

Brazil Is An Acceptable Seat for An Arbitration.

• Favorable laws and courts in commercial centers.

• The award can be enforced overseas under the New York Convention.

• Legal culture favoring arbitration.

• Growing number of experienced and respected arbitrators.– But you do not have to appoint arbitrators from Brazil.

– Some types of transactions require a Brazilian seat.

– Private-Public Partnership Law. (Law No. 11.079 (2004), Art. 11).

– Public Concessions Law. (Law No. 8.987 (1995) Art. 23-A, as amended by Law No. 11.196 (2005).

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Considerations for Choosing a SeatConsiderations for Choosing a Seat

• Foreign investors often prefer an international financial center like New York, London or Paris.

• Where does the other party have assets to pay an award?

– If assets are mostly in Brazil, consider a Brazil seat to avoid the delay of homologation.

– If ample assets are outside of Brazil, consider an international financial center. o New York courts have recently approved seizure of assets held

outside the U.S. if the bank has a NY office.

• Is it likely that provisional relief (e.g., an injunction) would be required:

– If the provisional relief would be in Brazil, choose a Brazil seat. That makes it easier for the courts to order and enforce provisional relief.

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Considerations for Choosing a Seat [cont’d]Considerations for Choosing a Seat [cont’d]

• Brazilian arbitrations may tend to follow procedures of Brazilian courts.

• If you choose Brazil, choose São Paulo or Rio de Janeiro.

• Transactions under some Brazilian laws must be in Brazil.

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No Investment Treaty ProtectionNo Investment Treaty Protection

• Brazil has no Bilateral Investment Treaties

– Brazil signed 14 BITs in the 1990s, but none were ratified and none are in force.

• Brazil is concerned about:

– Protecting its sovereignty

– Experience of other countries, such as Argentina.

• There are reports that Brazil is considering BITs.

– But they might not give investors rights to bring claims in arbitrations.

• This means foreign investors must rely on their contracts and local law to protect their investments.

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ConclusionConclusion

• Brazil has laws favoring arbitrations.

• Brazilian courts are (mostly) enforcing arbitration agreements and awards.

• Select the seat for an arbitration based on the circumstances of each transaction.– Brazil is acceptable and may be required.

– Depending on the circumstances, a foreign seat may be preferable.