THE AUTHOR:
Marjorie Lopes Coelho Vieira, Foreign Qualified Lawyer at Mayer Brown
Latin American Arbitration Practitioners EU (LATAP EU) is an association aimed at building a network of practitioners focused on international arbitration and with strong ties to, or experience in, Latin America and based in Europe. On September 2023, LATAP EU organized its first Annual Conference in Paris, France, hosted by Mayer Brown.
Introducing the Panel
On September 6, 2023, the first annual conference of the Latin American Arbitration Practitioners EU (“LATAP EU”) was held at the Paris office of Mayer Brown. The one-day event was divided into five panels, which discussed hot topics related to international disputes in Latin America. This report provides a summary of the second panel, where panelists Ana Gerdau de Borja Mercereau (Derains & Gharavi), Andre Luis Monteiro (Quinn Emanuel), and Daniel Levy (Enyo Law), moderated by Leonardo Ohlrogge (MLL Legal), discussed “The Current Panorama of International Arbitration in Brazil”.
The Implicit Consent to Arbitrate: STJ’s latest decision
Ms. Gerdau de Borja addressed the recent decision of the Brazilian Superior Court of Justice (“STJ”) in the Recurso Especial 1.988.894 (Justice Rapporteur Maria Isabel Gallotti, May 9, 2023, DJ May 15, 2023), in which the Fourth Chamber of the STJ ruled that the insurer’s prior knowledge of the existence of an arbitration clause in the contract covered by the insurance policy implies the insurer’s consent to arbitrate. The underlying dispute concerned an insurance policy issued by Mapfre Seguros, insuring the Colombian company Empresas Públicas Medellín against the risks of international maritime transportation of turbine and generator components for a hydroelectric plant exported by Alstom Energias Renováveis Ltda.
The STJ held that the insurer, Mapfre Seguros, had the opportunity to analyze the insured contract and the arbitration clause contained therein. Therefore, the insurer had agreed to subrogation to the rights and obligations under the insured contract including to its arbitration clause. Furthermore, the decision highlighted that this conclusion was appropriate because the insurance contract at issue was not an adhesion contract, as there was no disproportion in the bargaining power between the parties.
According to Ms. Gerdau de Borja, the decision confirms Brazilian case decisions that consent to arbitrate does not have to be written: it can be implicit. However, the analysis of whether the insurer had agreed to arbitrate has to be made on a case-by-case basis. If the parties to the insured contract had agreed to arbitrate only after the insurance contract had been signed, the solution would not have been the same, pursuant to the opinion of the Justice Rapporteur in the Mapfre case.
The speaker further explained that the decision in the Mapfre case above is not inconsistent with the decisions by State courts ruling on similar issues in other jurisdictions favorable to arbitration. In France, for example, State courts understand that subrogation by the insurer to a given credit also includes procedural burdens attached to the same credit (see, for example, Cour de Cassation, Chambre civile 1, Nov. 22, 2005, 03-10.087) Therefore, subrogation includes the arbitration agreement attached to the credit. Also, in the United Kingdom, State courts have decided that where a third party seeks to enforce rights granted under a contract containing an arbitration clause, such enforcement must be in accordance with this contractual requirement (see Shipowners Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret A.S. [2016] EWCA Civ 386).
Shareholders’ Class Arbitration in Brazil
Mr. Monteiro then spoke about shareholders’ class arbitration in Brazil and the proposed bill to regulate this type of arbitration. After explaining how arbitration involving shareholders’ disputes had evolved in Brazil since 2001, when the Brazilian Congress passed a law authorizing companies to include arbitration clauses in their articles of association, he explained that the idea of having a shareholders’ class arbitration framework had been discussed as a potential solution to current issues affecting the Brazilian capital market.
This is because, he added, the São Paulo Stock Exchange has a mandatory requirement that publicly listed companies have to include an arbitration clause in their articles of association. When a series of corruption scandals involving publicly listed companies were unveiled by the Car Wash Operation between 2014 and 2017 and the share prices of the relevant companies dropped dramatically, the shareholders seeking indemnification for their losses could not start class actions before state courts, as all these companies had arbitration clauses in their articles of association. Even if they could, the disputes would last for at least 10 years, given the never-ending courts’ backlog. Moreover, it would not be feasible to start thousands of individual arbitrations. Some of those publicly listed companies had (and still have) almost a million shareholders. Many of them are foreign investors (for example, 47% of the shareholders in Petrobras are foreign investors). In light of that, class arbitration has been presented as the most realistic solution.
He explained that he worked as a consultant for the OECD on a project on private enforcement of shareholders’ rights in Brazil and he concluded that no country in the world has a legal framework for class arbitration specifically involving shareholders’ disputes in publicly listed companies. Despite the risks associated with such an unprecedented initiative, no other alternative seems more adequate to solve the problem, which is affecting how foreign investors assess their benefits in investing in the Brazilian capital market. This is the proper moment, he added, to discuss the bill and hear all interested parties, in particular companies and minority shareholders, including foreign investors.
Mr. Monteiro went on to discuss some of the key points of the draft law regulating shareholders’ class arbitration. He explained that the bill limits the standing to file arbitration to shareholders holding 2,5% or more of the shares or shareholders who had purchased more than USD$ 10 million, which restricts the number of potential claimants who will be able to start the cases. Regarding the res judicata effect of the awards, the bill provides that all shareholders shall be informed that the class arbitration has commenced and they will be bound by decision unless they opt-out. The arbitration in these cases will be public, the arbitration files will be open to all shareholders, and some documents will be open to everyone.
STJ’s Judgement on Conflict of Competence Between Arbitral Tribunals
The panel concluded with Mr. Levy sharing his insights on the judgement rendered by the STJ in 2022 (CC 185.702 – DF, 2nd Section, judge Marco Aurélio Bellizze, 22.06.22) regarding a conflict of competence between two arbitral tribunals appointed within the same institution. In this case, two minority shareholders initiated separate arbitrations against the majority shareholders using their extraordinary standing allowed under Article 246 of the Brazilian Corporation Act to act in lieu of the company in certain circumstances. Later, the company itself finally approved a claim against its majority shareholders and officers through a vote of its extraordinary general assembly. In this case, the company would be acting in its ordinary standing pursuing mostly the same claims as the minority shareholders. All the claims arise out of compensation claimed for the loss of value of the company’s shares due to its involvement in corruption schemes. As the three arbitral tribunals considered themselves competent to hear the disputes, the issue was taken to the STJ to decide.
The first question posed to the STJ was whether it had jurisdiction to decide the case. The Brazilian Constitution allows the STJ to hear conflicts of competence between courts of different states. In this case, the STJ reasoned that arbitral tribunals are also a jurisdiction. Therefore, the STJ has jurisdiction to decide on a conflict of competence between arbitral tribunals. The decision develops a previous understanding of the same court (CC 111.230, 08.05.13) that a conflict of competence between a State court and an arbitral tribunal would fall into the scope of the Constitutional provision, as both are qualified as jurisdictions for this purpose. However, this new position would distance itself from an even older precedent (CC 113.260/SP, 08.09.10) whereas the same Court found that there could not be a conflict of competence between two arbitral tribunals under the administration of two different institutions.
On the decision examined here, the reporting judge was content that the understanding denying the conflict between two arbitral tribunals would now be superseded by the decision confirming that both arbitral tribunal and State court are jurisdictions for the purposes of its constitutional competence and, thus, there would be jurisdiction to admit a case between two arbitral tribunals (even if belonging to the same institution).
On the merits, the STJ ruled that the arbitration initiated by the company was the one which had to continue, because the company is the one that has ordinary standing to commence the arbitration. According to the STJ, although the Companies Act allows minority shareholders to commence an arbitration, they can only do so under certain conditions. The standing of the minority shareholders is an exception and would be a subsidiary.
Mr. Levy argued that the decision is correct technically but could represent a setback for minority shareholders when there is a clear influence of majority shareholders in the decision to prevent the company from pursuing a case. The speaker also explained that it would be logical to think that when there is a conflict of competence between arbitral tribunals in different institutions, there is certainly an issue interpreting the arbitration convention. We would most likely be facing a pathological clause. In this case, Mr. Levy thinks we are in the presence of a violation of contract rather than a jurisdictional issue requiring the intervention of the STJ. On the other hand, if the conflict is between two arbitral tribunals under the same institution with overlapping substantial issues, then there is a problem of competence that the STJ can decide. However, the decision discussed does not make this distinction.
ABOUT THE AUTHOR
Marjorie Lopes Coelho Vieira is a Foreign Qualified Lawyer at Mayer Brown, Frankfurt. She specializes in international commercial arbitration, with a focus on construction disputes. She is also editor of the platform CISG-Brasil.net.
* This report has been approved by all the conference speakers.
