The Fourth Chamber of the Superior Court of Justice recently held that an arbitral tribunal has jurisdiction to (re)assess a pre-arbitral interim measure relating to an agreement containing an arbitration clause that was previously filed before the judiciary as soon as it is constituted.
The controversy brought before the court concerned a recurring issue in the field of arbitration: the intersections between state courts and arbitral tribunals, especially when dealing with the establishment of competent jurisdiction.
The case originated from a pre-arbitral provisional remedy of the early production of evidence for the economic/financial evaluation of the corporate shares of Instituto Cultural Newton Paiva Ferreira. Morus Educacional Participações S/A (the applicant) purchased several of Instituto Cultural Newton Paiva Ferreira's corporate shares from Newton de Paiva Ferreira Filho (the respondent).
A fraction of the shares' purchase price was subject to the evaluation of Instituto Cultural Newton Paiva Ferreira's shares equity value. Due to divergences between the parties regarding this calculation, the applicant filed a provisional remedy before the judiciary to produce an expert evaluation before the court, even though the share purchase agreement contained an arbitration clause electing the Centre for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC) as having jurisdiction to resolve any disputes between the parties.
The applicant argued that it could not wait for the constitution of the arbitral tribunal and filed for a provisional remedy of early production of expert evidence. The judiciary granted the provisional remedy and both parties submitted their questions to the court-appointed expert.
However, in the meantime, the applicant gave notice of the constitution of the arbitral tribunal before the CAM-CCBC, requesting the immediate abolition of the action (before the production of expert evidence), arguing that, from that moment, the arbitral tribunal had jurisdiction to conduct the production of expert evidence.
The respondent objected to the applicant's pleading, arguing that the action was filed before the arbitral tribunal was constituted. Based on its understanding, the state courts would lack jurisdiction to rule on provisional measures only where such measures were requested after the constitution of the arbitral tribunal.
In summary, the key issue brought before the court (considering that between the filing of the pre-arbitral provisional remedy and the performance of the expert evidence (the judiciary had already granted the interim measure) the arbitral tribunal was constituted before the CAM-CCBC) was which body should conduct the production of evidence – the judiciary or the arbitral tribunal? Would requesting an interim measure before the judiciary constitute a waiver of the arbitral tribunal's jurisdiction to rule on the pleading?
After judgments on the first and second instance were issued dismissing the applicant's motion, the court granted the applicant's special appeal, ruling that the arbitral tribunal was competent to revisit the judiciary's ruling and conduct the proceeding for the production of expert evidence.
The decision under analysis was granted unanimously by the justices of the Fourth Section of the Superior Court of Justice. Justice Maria Isabel Gallotti was the judge-rapporteur of the appeal. In summary, she based her decision on the following grounds:
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Although the judiciary has competent jurisdiction to try provisional remedies in cases where parties cannot wait for the constitution of the arbitral tribunal, this does not implicitly waive the arbitrator's jurisdiction.
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The arbitral tribunal does not lose jurisdiction over a matter due to a judgment entered by the judiciary regarding a claim for interim measures in a provisional remedy.
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Within 30 days of the request for a pre-arbitral interim measure, the applicant must file the request for arbitration; otherwise, the lawsuit will expire and the judiciary will not be allowed to process the provisional remedy.
To support these arguments, Gallotti quoted Articles 22-A and 22-B of the Arbitration Act (9,307/96), in line with previous Superior Court of Justice rulings and legal doctrine. She stated that:
"it is possible to file a provisional remedy for the adoption of urgent measures before the judiciary, but the authority to process it, after the initiation of the arbitration, is immediately of the arbitrators, who may re-examine any measure that had been previously granted."
Practitioners in the field have agreed with Gallotti's position, which is in accordance with the Arbitration Act, legal doctrine and the court's previous rulings. In addition, the decision appears to be appropriate if analysed from a pragmatic view regarding the importance of the expert evidence.
Pre-arbitral interim measures and arbitral tribunals' power to review them
Parties often seek to resolve their disputes through arbitration because of several perceived potential advantages over judicial proceedings. Compared to state court litigation, arbitration is often more sophisticated (at least in Brazil) – in particular because of arbitrators' expertise and dedication. This sophistication is also significant in terms of the production of evidence, which in arbitration tends to be broader and more in-depth.
Once again, at least according to reality in the Brazilian judiciary system, expert evidence produced before the state courts is of little use in arbitration proceedings. In other words, it is an inefficient, costly and irrelevant pre-arbitral proceeding.
Further, pursuant to the Arbitration Act,(1) arbitrators have the same power as conferred to judges to order the production (or even request support from the judiciary body) of any kind of evidence.
Bearing this in mind, in cases where parties have executed an arbitration agreement, it would be inefficient (except in extremely urgent situations) to produce evidence before the judiciary, given its limitations in Brazil. This is because, on the execution of such agreements, parties expect in-depth, broad and complex evidence to be produced in the event of disputes.
Despite this, the Arbitration Act expressly gives the judiciary jurisdiction to rule on pre-arbitral interim measures filed before it, while giving arbitrators jurisdiction to review any rulings by the judiciary as soon as the arbitral tribunal is constituted:
"CHAPTER IV-A
PROVISIONAL MEASURES OF PROTECTION AND URGENT RELIEF
Article 22-A. Prior to commencing the arbitration, the parties may seek provisional measures of protection and urgent relief from a judicial court.
Sole paragraph. The efficacy of the provisional measure granted by the judicial court shall cease if the interested party does not file the request for arbitration within 30 (thirty) days from the date the respective decision takes effect.
Article 22-B. Once arbitration has been commenced, the arbitrators will have competence for maintaining, modifying or revoking the provisional or urgent measures granted by the Judicial Authority.
Sole paragraph. If arbitration proceedings have already been commenced, the request for the injunctive and urgent relief will be directly addressed to the arbitrators."
Luckily, the court has been following and respecting these provisions. There are several other Superior Court of Justice precedents which respect the autonomy of the parties and adopt a pro-arbitration approach.
The decision at hand falls in line with the Superior Court of Justice's case law, legal doctrine and the Arbitration Act. Articles 22-A and 22-B of the act regulate the regime applicable to pre-arbitration interim measures, as well as the power of arbitral tribunals to review such measures after their constitution.
Even if there is an arbitration agreement, before the constitution of the arbitral tribunal, parties may file actions before the judiciary for emergency protection. If granted, the interested party must request the initiation of the arbitration procedure within 30 days. These are the pre-arbitral interim measures. Once the arbitration has been established with the constitution of the arbitral tribunal, the arbitrators will be responsible for maintaining, modifying or repealing the measure granted by the judiciary. On the other hand, if the arbitration procedure is already in progress, and any of the parties need urgent protection, the request must be directed exclusively to the arbitrators.
For further information please contact Luciano Timm or Marcelo Richter at Carvalho, Machado & Timm Advogados (+55 11 2872 4760) or email ([email protected] or [email protected]). The Carvalho, Machado & Timm Advogados website can be accessed at www.cmtlaw.com.br.
Endnotes
(1) Article 18 states that: "An arbitrator is the judge in fact and in law, and his award is not subject to appeal or recognition by judicial court". Article 22 states that:
"The sole arbitrator or the arbitral tribunal, either ex officio or at the parties' request, may hear parties' and witnesses' testimony and may rule on the production of expert evidence, and other evidence deemed necessary."
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