Founding Partner, Wald e Associados Advogados; and Partner, Wald e Associados Advogados
In the Interclínicas case, Interclínicas argued that a decree of its extrajudicial liquidation amounted to a supervening cause of invalidity of an arbitration clause. In addressing this argument, Brazil’s Superior Court of Justice issued a landmark decision in a thorny issue faced by local arbitration practitioners: Are disputes involving bankrupt companies arbitrable? The answer given by the Brazilian high court was, to a great extent, yes. In this Commentary, Arnoldo Wald and Rodrigo Garcia Da Fonseca, partners at Wald e Associados Advogados, discuss the implications of the Interclínicas decision. They write:
The Brazilian Arbitration Act, Law n. 9.307/96, establishes in its article 1 that disputes are arbitrable when the parties are legally capable of entering into enforceable agreements (pessoas capazes de contratar), and the discussion relates to negotiable rights of a patrimonial nature (direitos patrimoniais disponveis). There were doubts among the professionals in the field as to whether the applicability of bankruptcy laws, which impose a number of restrictions as to the disposition of rights and obligations of insolvent companies, would bar the arbitrability of disputes involving such entities.
. . . .
. . . [Justice Nancy Andrighi] rejected any arguments as to subjective inarbitrability of the dispute. The fact the Interclínicas is under extrajudicial liquidation does not render it incapable of entering into enforceable agreements, which is the subjective standard required by article 1 of the Brazilian Arbitration Act. The liquidator named by the ANS [Agncia Nacional de Sade Suplementar] has broad powers to represent to company in new or pending transactions, and the restrictions as to what he or she can or cannot do are not such that would prevent the company from going to arbitration.
Another relevant issue pointed out in Justice Andrighi's opinion is that, in the case at hand, the arbitration clause was agreed to before the decree of the extrajudicial liquidation of the company. There can be no doubt that it was a valid contractual provision at the time it was agreed to, entered into between two companies in a commercial setting. The opinion then goes on to say that there is no legal reason to invalidate the arbitration clause ex post facto.
There is nothing that prevents the insolvent company and the liquidator from taking part in an arbitration, just as they can take part in court proceedings. The arbitration can go forward and the procedural rights of the entity in liquidation are in no way harmed, because the rules applicable to arbitration proceedings fully protect the due process rights of the parties. Therefore, Justice Andrighi added, the public interest related to the liquidation of the company is not at risk by its participation in the arbitration, as provided for in the dispute resolution clause of the agreement. Given that all the rights of the company subject to liquidation are protected and can be defended in the arbitration, there is no prejudice to the rights of its creditors.
(footnotes omitted)