The Court of Appeals of São Paulo recently rendered an important decision related to the consolidation of arbitration proceedings.
The case originated from the collapse of the mining dam of Córrego de Feijão, in Brumadinho, in the State of Minas Gerais, a terrible tragedy that took place in early 2019, caused many deaths and had huge environmental impacts in the region.
After the disaster, the Instituto Brasileiro de Ativismo Societário e Governança (“IBRASG”), an NGO, and other co-plaintiffs submitted two arbitrations against Vale S/A (“Vale”), the owner of the dam, before the Arbitration Chamber of the Brazilian Stock Exchange (“CAM-B3”), alleging the violation of the company's duty to inform its investors and shareholders of the risks of its operations and requiring the compensation by Vale for alleged damages suffered by such investors and shareholders.
Vale requested the consolidation of the two proceedings before the CAM-B3, under the argument that both arbitrations had the same cause of action and the same object.
CAM-B3's President denied the consolidation in an administrative decision. Vale then filed a lawsuit against CAM-B3 and the plaintiffs seeking a judicial order that both arbitrations had to be consolidated and should be processed before one single Arbitral Tribunal.
Vale's request for consolidation was denied in the first instance, and on July 2021, in the judgment of the Appeal n. 1031861-80.2020.8.26.0100, the 1st Chamber of Corporate Law of the Court of Appeals of the State of São Paulo (“1st Chamber”) confirmed the ruling of the trial court.
The opinion of the 1st Chamber stated the Judiciary should not intervene in the administrative decision of the arbitral institution about consolidation of arbitration proceedings.
First of all, the 1st Chamber pointed out the existence of an arbitration agreement in Vale's bylaws, in which arbitration is the method elected for the resolution of all disputes. The arbitration agreement further stipulates that any proceedings shall be administered by CAM-B3 and shall be conducted under the CAM-B3's Arbitration Rules. In this context, the 1st Chamber decided that Vale and its shareholders were fully aware of the rules to which they were subject and, therefore, they are bound by CAM-B3's Arbitration Rules.
The Court of Appeals of the State of São Paulo stated that, in accordance with Article 5 of the Brazilian Arbitration Act of 1996 (Law n. 9.307), “if the arbitration clause makes reference to the rules of a particular arbitration institution or specialized entity, the arbitration shall commence and be conducted in accordance with such rules”, and that, pursuant to Article 21, “the sole arbitrator or the arbitral tribunal shall comply with the procedure agreed upon by the parties in the arbitration agreement, which may refer to the rules of an arbitral institution or specialized entity, it being possible for the parties to empower the sole arbitrator or the arbitral tribunal to regulate the procedure”.
The 1st Chamber also highlighted that, pursuant to Article 6.2 of CAM-B3's Arbitration Rules, there is an express rule about the consolidation of proceedings, which defines that “when Requests for Arbitration involve issues of fact or law in common with arbitration proceedings that are already under way and are governed by these Rules, the President of the Arbitration Chamber may direct that the proceedings be consolidated after hearing the parties and taking into consideration the circumstances and progress already achieved in the proceedings in question”.
The Court found that CAM-B3's Arbitration Rules, which are binding on Vale and its shareholders, empower the President of the institution to decide on the consolidation of arbitrations, with a considerable degree of discretion, and therefore the Judiciary may not intervene in such matter.
The 1st Chamber affirmed that the decision rendered by the President of CAM-B3 is of an administrative nature, and that it was rendered within the scope of its competence and in accordance with the Arbitration Rules, to which the parties freely submitted. It also pointed out that, once the Arbitral Tribunal is established, the arbitrators will be able to analyze and eventually review the decision not to consolidate the arbitrations.
There has been a previous judgment by the Court of Appeals of Rio de Janeiro that reached a different solution. In 2013, the 19th Civil Chamber of the Court of Appeals of the State of Rio de Janeiro (“19th Chamber”) decided to consolidate three arbitrations administered by the FGV Mediation and Arbitration Chamber, in the judgement of Appeal n. 0301553-55.2010.8.19.0001. On that occasion, the Court confirmed a decision of the first instance and determined the consolidation of three arbitrations before only one arbitral tribunal, composed of three arbitrators appointed by the arbitral institution. The three proceedings were related to a contract for the supply of goods and services for the implementation of a hydroelectric plant and associated transmission system.
In that case, the 19th Chamber decided that the possibility of conflicting decisions in the different arbitrations justified the consolidation of the proceedings before a single arbitral tribunal, considering no tribunals had been formed yet and the parties disagreed on how to appoint the arbitrators. The decision stated there would be no harm to the parties involved, because the analyses of the arbitration proceedings would be carried out on a case-by-case basis, and not in an unified decision, but before the same arbitral tribunal, thus excluding the possibility of conflicting awards.
It is important to mention, though, that, unlike CAM-B3, the FGV Mediation and Arbitration Chamber had no specific administrative rules on consolidation, and, therefore, there was no previously agreed upon rules on this matter.
Consolidation of arbitration proceedings can raise very complex issues, and it is important the parties are well aware of the institutional rules applicable to each case. Various institutions, such as the ICC, have recently revised their rules specifically in relation to consolidation.
The recent decision of the São Paulo Court of Appeals can be seen as a positive pro-arbitration step, considering the deference of the Judiciary to the arbitration rules adopted by the parties and its reluctance to interfere in arbitration proceedings in the absence of any clear illegality.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
