In a recent decision, Brazil’s Superior Court of Justice (“STJ”) held that a certain Regulatory Agency would be subject to the effects of an arbitration award issued in the context of an arbitration brought by the Concessionaire against the Granting Authority, to which the Agency was not a party (Interlocutory Appeal No. 1905505 – SP).
The lawsuit, which culminated in such decision, was filed by Sanessol S.A. (“Concessionaire”) aiming to overturn the Ordinance No. 02/2017 of the Mirassol Water and Sewage Regulatory Agency (“Regulatory Agency”), issued after the arbitral award, seeking to prevent its enforcement. The arbitration award had condemned the Mirassol City Council (“Granting Authority”) to readjust the remuneration rate paid to the Concessionaire by 17.96%, as part of the economic and financial rebalancing of the concession contract signed between the parties.
Although the Regulatory Agency was not part of the concession contract, the Granting Authority requested its joinder to the arbitration proceedings as a joint litigant. The Sole Arbitrator rejected the request on the grounds that the Agency was not part of the bidding process nor the contract. Therefore, the arbitration proceeded and, in early 2017, the case was awarded.
In accordance with the arbitration award, the Concessionaire published the remuneration rate’s readjustment as defined by the Sole Arbitrator. Subsequently, the Regulatory Agency issued the aforementioned Ordinance, in which it considered that it had not participated in the arbitration between the Concessionaire and the Granting Authority and, therefore, prohibited the revision or economic-financial rebalancing without its express authorization, which could only be granted by homologatory resolution, under penalty of breach of the concession contract.
Non resigned, the Concessionaire filled an action for the annulment of the Regulatory Agency’s administrative act. The Agency argued, in its defense, that it could not be subject to the arbitration award because it was not a party to the proceedings, and for that reason, it could exercise its regulatory power to prevent the remuneration rate’s increase.
Both the initial and appellate court judges dismissed the case.
However, when analyzing the appeal, STJ considered that, despite not having participated in the arbitration process, the Regulatory Agency authorized the Granting Authority to approve the contractual amendment, by means of which the rate of return was provisionally adjusted until the issue was definitively solved by arbitration.
It is worth noting that a letter from the Regulatory Agency was attached to the case file, prior to the contractual amendment, in which it suggested that the parties (the Granting Authority and the Concessionaire) should solve the issue through arbitration and that it should only keep it informed of the progress of the case, which shows that it had no interest, at least at that time, in participating in the arbitration.
It should be noted that the Reporting Minister, Francisco Falcão, concluded that “ARSAE participated in the arbitration proceedings when, taking advantage of its position as Mirassol’s water and sewage regulatory agency, it authorized the contracting parties to submit to arbitration”. He also stated that “it is unreasonable” that, after the arbitration award, the Regulatory Agency should rely “on the argument that it should have participated from the beginning of the procedure.” After all, there must be “stability in situations created administratively” as a way of preserving legal certainty.
The decision is relevant since it reinforces the effectiveness of arbitration awards and other decisions and, consequently, the trust placed by the market in an alternative dispute resolution method, especially when the dispute is brought against public entities.
The peculiarities of the case in question demonstrate the care that the parties must take to ensure the effectiveness of the arbitration award, especially in cases involving public authorities. To this end, the support of qualified legal advice is essential.
Authoria: Thiago Andere Martins.
