By Felipe V. Sperandio.

Counsel at Clyde & Co’s International Arbitration Group, Associate Professor at Queen Mary University of London.

On March 30, English Courts recognized and enforced the arbitral award in the case Carpatsky Petroleum Corporation v. PJSC Ukrnafta (Case No. CL-2016- 000547), under the New York Convention.

The decision is very interesting because it values the seat of the arbitration and, in particular, because it seems that its reasoning finds no equivalent in the precedents of the Brazilian Superior Court of Justice (the “STJ”), as briefly discussed below.

Award. The party that was unsuccessful in the arbitration filed a request for annulment of the arbitration award in Sweden (seat of the arbitration), arguing that: (i) the arbitral tribunal lacked jurisdiction; (ii) there was a procedural irregularity in the calculation of damages; and (iii) the arbitral tribunal exceeded its mandate.

Swedish courts dismissed the request for an annulment.

The winning party commenced proceedings for the recognition and enforcement of the foreign arbitral award in England. The unsuccessful party objected to the enforcement, arguing that: (i) the arbitration clause was null and void (art. V.1. (A) of the NYC); (ii) there was a procedural irregularity (art. V.1. (b) of the NYC); and (iii) the arbitral proceeding was not conducted pursuant to the parties’ agreement (art. V.1. (d) of the NYC). In addition, the losing party raised an argument regarding the law applicable to the interpretation of the arbitration clause that was inconsistent with an argument it had presented in Sweden.

The English court granted the request for recognition of the foreign arbitral award; and rejected the defense’s arguments, partially based on two interesting grounds:

1. The unsuccessful party could not attempt to relitigate in the English enforcement proceedings the arguments it had presented and discussed in the Swedish annulment proceedings, under the estoppel doctrine. Good Challenger Navegante v Metalexportimport ([2003] EWCA Civ 1668) determined the following test for finding estoppel: (i) the Award must have been handed down by a competent foreign authority with jurisdiction; (ii) the decision shall be final, definitive and based on the merits; (iii) identity of parties, (iv) identity of the subject, because the issue decided by the foreign authority shall be the same as that presented to English courts.
2. It would be an abuse of process to present arguments in the recognition proceedings in England that were not presented in Sweden (“Henderson v Henderson [1843-1860] All ER Rep 378” established that the parties must present a full case before courts, – otherwise it amounts to an abuse of process).

Comparison with the position in Brazil. The STJ does not recognize the international principle of comity, and its jurisprudence does not determine the preclusion of the right to relitigate, in proceedings for the enforcement of a foreign arbitral award, arguments already discussed at the seat of the arbitration (eg, SEC No. 9.412).

The STJ’s approach is appropriate in certain cases, such as when there is a clear risk of a violation of Brazilian public policy (art. V.2.(b) NYC). However, such approach does not seem desirable in all circumstances, including, for example, in cases where:

(i) the procedural law applicable to the arbitration is the law of the arbitral seat, and the courts of the seat have considered and rejected allegations of procedural defects; or

(ii) The law applicable to the arbitration clause is the law of the seat of the arbitration, and the courts of the seat have considered and rejected allegations regarding the nullity of the arbitration clause.

Moreover, a decision that denied the annulment or confirmed the enforcement of the arbitration award at the seat is generally a foreign court decision subject to enforcement in Brazil (what would preclude the relitigation of the subject matter).

Additionally, there may be a difference in the treatment granted to arbitral awards annulled at seat, and arbitral awards sustained at the seat. For example, by denying the recognition of a foreign arbitral award annulled in Argentina (seat of the arbitration), the STJ did not review de novo the arguments discussed in the annulment proceedings, because it was impossible to review a foreign court decision (see SEC No. 5.782-EX).

In this context, two questions arise:

(a) Would the reasoning of the English decision be compatible with Brazilian law?

(b) If so, would adopting a similar position bring any benefit to the use and practice of arbitration, and would it be in the interests of its users?

To answer a question (a), it is necessary to verify whether Brazilian law allows the STJ’s application of an understanding similar to that adopted in the English decision. For example, would it be possible to apply and extend the notion of preclusion so that is equivalent to the application of the estoppel rule discussed above? Is there room to expand the application of art. 337, §1, §2 and §4, and art. 505 of the Brazilian Code of Civil Procedure? Would the principle of venire contra factum proprium, in certain situations, achieve a result similar to the notion of abuse of process? Could the principle of good faith (art. 5 of the Brazilian Code of Civil Procedure) serve as the basis for precluding a second bite at the cherry, based on the same arguments exhaustively discussed in the seat of arbitration?

These questions are complex and require an in-depth study.

Regarding question (b), the answer seems clearer. There is room to narrow ab initio the scope of issues discussed in proceedings for the recognition of foreign decisions in the STJ in certain circumstances, what would make the process faster and less costly (e.g, in SEC No. 14,930 / US – the recognition took more than four years because the losing party re-introduced and relitigated the same arguments that had been previously rejected by the courts of the seat of arbitration).

The seat of arbitration is negotiated and agreed upon by the parties to the arbitration clause. The parties choose a seat, among other reasons, because they are satisfied with the degree of review applied by the courts of that country with regard to arbitration awards. Barring the relitigation of arguments that were already rejected strengthens the final character of the arbitral award and increases predictability and efficiency in arbitration, because it prevents the same issues from being raised in each country in which recognition is sought.

Anyway, the suggestion is not to open the border for foreign arbitral awards, with no institutional control. Far from it. Also, it is not suggested the adoption of a strict rule that could in theory preclude exceptions. However, would it be beneficial, in certain cases, to restrict the scope of issues capable of discussion in proceedings for recognition of foreign arbitral awards, by prohibiting the losing party from reintroducing and relitigating the arguments exhaustively litigated at the seat of the arbitration?