Enforcement of common and civil law arbitral awards in Latin America and the Caribbean: the Brazilian and Cayman example

This article was co-authored by Danielle Benjamin, Law Clerk for Kennedys in the Miami hub for Latin America and Caribbean.

I. Arbitration Clauses in Insurance Contracts

Arbitration provisions under contracts for insurance can often provide for a more expeditious and confidential (although not necessarily cheaper) settlement of disputes than passage through the courts. These provisions can either be mandatory or voluntary to the insured (or cedant) and insurer (or reinsurer) bound by the contract.

Furthermore, the procedural rules by which the arbitration will be governed tend to be agile, and usually involve a third party arbitration service (e.g. the International Chamber of Commerce, the Jamaica International Arbitration Centre, the Arbitration and Mediation Court of the Caribbean in Barbados, or the Centro de Arbitragem e Mediação da Câmara de Comércio Brasil-Canadá in Sao Paulo and Rio de Janeiro).

Several government and consumer agencies in the US, Latin America and the Caribbean region, criticise the presence of mandatory arbitral provisions such as the suppression of the consumers’ pursuit of remedies. In observance of such concerns, Brazilian courts for instance will usually invalidate commercial agreements to arbitrate where there is imbalance of economic power between the parties and where there was no option to amend or review the contractual terms and conditions.

However, while there may be regulatory push-back against mandatory provisions to arbitrate, jurisdictions in the region such as Jamaica, Barbados, and Brazil recognize the use of arbitration in insurance contracts.

II. Cayman Enforcement of Brazilian ICC Award

The recent decision of the Caymanian Court of Appeal in the matter of Gol and MP Funds regarding a 2007 Brazilian ICC Arbitral Award in favor of Gol has strong implications for the importation and enforcement of arbitral awards among various countries and between contrasting legal systems. Thus, because of the Cayman decision, it is conceivable that an insurer who receives a favorable arbitral decision in a civil law jurisdiction, for example, can have that award enforced both under the English common law system as well as within the Caribbean Commonwealth to the extent that the relevant jurisdiction has adopted English law and reasoning. Of course, the insured who receives a favorable award will, also, have a broader jurisdictional reach within which to enforce their rights.

In this case, MP Funds essentially challenged the jurisdiction of the arbitral tribunal and the validity of the award on grounds allowed under Section 7(2) of the Caymanian Foreign Arbitral Awards Enforcement Law (1997 Revision) (“FAAE”) which is similar to Article V of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). Namely, Section 7(2) challenges failings in the application of arbitration rules and procedure by allowing for the refusal of recognition and enforcement of a foreign arbitral award on these bases. Both Brazil and Cayman have acceded to the New York Convention and have promulgated laws that import the principles of the Convention into their respective legal systems. In Brazil’s case, it is the Brazilian Arbitration Act (Law 9,307/1996) (hereinafter, “BAA”) and in Cayman it is the FAAE.

The Court of Appeal found in favor of Gol and against MP Fund’s arguments by determining that the Brazilian arbitral award is recognizable and enforceable in Cayman. The Court reached its reasoning based in large part on the principles underpinning Article III of the Convention which states: “[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon…” It reasoned, applying the English and Caymanian jurisprudential principles, such as those related to due process determinations, public policy and the doctrine of estoppel, that the matters before it were the same matters that had been addressed in the Brazilian local court judgments regarding the ICC award.

As such, English and Caymanian jurisprudence (inclusive of the principles within the Convention) mandated that the Court should follow the decision of the Brazilian courts on matters decided according to its own law rather than re-interpreting Brazilian law in Cayman courts. It recognized and acknowledged that civil law concepts (e.g. iura novit curia[1] which has no equivalent under the common law) were applicable to the decision in Cayman courts.

Within the civil law jurisdiction of Brazil, arbitral awards have the same legal status as court judgments and can be enforced by the courts. Brazilian courts are increasingly friendly towards arbitration and, as such, they try to limit their intervention in arbitral proceedings to a minimum. In 2018, the Brazilian Superior Court (Superior Tribunal de Justiça - STJ) issued the decision REsp1.550.260, wherein it was decided that agreements to arbitrate entail recognition of the jurisdiction of the arbitral tribunal over the Brazilian Courts. The contractual clauses related to arbitration as the primary mechanism by which to solve any disputes between the parties is widely respected by the Brazilian courts. The courts tend to amend it only when an element to create a binding contract is absent or when a substantial issue with the contractual parties is identified. In that sense, one of the judges that voted in the decision REsp 1.550.260 emphasized the following:

Arbitration Act allows capable people of contracting to submit the disputes that may arise to the arbitral tribunal, by means of an arbitration agreement, inserting arbitration clause or arbitration commitment into the contract. In doing so, the jurisdiction of the arbitral tribunal, as a rule, precedes the Court's jurisdictional action to settle disputes relating to available rights. The arbitral award produces the same effects between the parties involved and, in case of an indemnity award, the award can be executed in the same way as a court decision. Furthermore, only after an award issued by the Arbitration Tribunal, the Court can act to eventually annul it, under the terms of articles 31, 32 and 33 of Law 9,307/1996.

Brazilian arbitral awards are not subject to appeal, unless so agreed by the parties, which is not common. Nonetheless, an arbitral award can be set aside by the Brazilian courts within a 90-day period from the notification of the award per Art.33(1) of the BAA. According to art.32 of the BAA, the grounds for an award to be set aside are as follows: (1) the arbitration agreement is null and void; (2) the award was rendered by someone who could not serve as an arbitrator; (3) the award does not meet the BAA’s mandatory requirements for an award; (4) the award exceeded the scope of the arbitration agreement; (5) the award does not decide the entirety of the dispute; (6) the award was rendered in the presence of nonfeasance, extortion, or passive corruption; (7) the award was not rendered within the term established by the parties or within six months, if no other term was stipulated, from the initiation of the arbitration proceeding; or (8) due process was not observed. However, the courts do not review the merits of the case and it has been their consistent trend to recognize awards and avoid intervention of any form.

Thus, this is the rubric inherited by the Caymanian courts via Article III of the Convention. The Court of Appeal’s reasoning presents an example of the seamless convergence of various systems of law (i.e. arbitration v. traditional courts and civil law jurisdictions v. common law jurisdictions), as guided by the Convention, resulting in the potential for broad international enforcement of arbitral awards throughout a multiplicity of jurisdictions.

III. Regional Foreign Arbitral Awards Enforcement Law

The likelihood of decisions similar to the Cayman Court of Appeal’s decision being found throughout Latin America the Commonwealth Caribbean is strong given the common law principle of precedent as well as the principle of reciprocity, applicable to both common and civil law jurisdictions as established under the Convention. Additionally, one important innovation introduced by the Convention is the exclusion of the “double exequatur” requirement—the party seeking enforcement of an arbitral award had to prove that the award was final and un-appealable in the country of the seat of the arbitration and in the country where the award was to be enforced. 

Barbados and Jamaica, both seats of arbitration in the Caribbean, as parties to the Convention, have local laws like the FAAE that import the Convention’s principles into their respective domestic legal systems. In Barbados, it is the Arbitration (Foreign Arbitral Awards)(Cap. 110A)(Foreign Arbitral Awards Act). In Jamaica, it is the Arbitration (Recognition and Enforcement of Foreign Awards) Act 2001. The Jamaican law recites the Convention’s articles within its texts and the Barbados law contains sections similar to both the Convention and the Cayman law such as Section 6(3) which refers to public policy as a basis for refusing to recognize and enforce foreign arbitral awards. Similarly, Brazil, also a party to the Convention, has the BAA. However, per Art. 35, an award by a foreign arbitral tribunal must be recognized by the Brazilian Superior Court (“STJ”).

Jamaica’s seat of arbitration, the Jamaica International Arbitration Centre (“JAIAC”) and Barbados’ seat of arbitration, the Arbitration and Mediation Court of the Caribbean (“AMCC”) both have rules and procedures based on the UNCITRAL Rules. Each nation’s courts are also subject to their respective, aforementioned laws on foreign arbitral award enforcement. Further, both have inherited the English common law as prototypes for their respective legal systems with Jamaica still giving heavily persuasive value to the decisions of British courts (the Privy Council still maintaining precedential value) and both Jamaica and Barbados allotting persuasive value to the decisions of courts throughout the Commonwealth, at large. Therefore, the reasoning employed in the Cayman decision and the similarity of its laws to those of Barbados and Jamaica, as well as the Commonwealth Caribbean region, make it highly likely that similar decisions will be made on the recognition and enforcement of foreign arbitral tribunal awards.

Although, it should be noted that uniform implementation of the New York Convention by member states is not a foregone conclusion. Members are allowed to limit the application of the Convention, such as adoption of the reciprocity reservation or the commercial reservation (wherein the application of the Convention is limited to commercial matters only). Thus, the lack of uniformity may be a hindrance to the enforcement of foreign arbitral awards and the development of a cohesive international arbitration system.

IV. Implications for Enforcement of Foreign Arbitral Awards Under Insurance Contracts in the Region

Insurers who may want to have a foreign arbitral award awarded in a civil law jurisdiction enforced in a Commonwealth Caribbean jurisdiction subject to the Convention and with foreign award laws similar to Cayman, Barbados, and Jamaica should apply to the local courts for recognition and enforcement and supply, per Article IV of the Convention: (1) a duly authenticated original award or a duly certified copy and (2) the original or duly certified copy of the agreement under which the parties have undertaken to submit to arbitration all or any differences which have arisen or may arise between them under the insurance contract. It is the same process for those insurers with awards in common law jurisdictions who would want to have their awards enforced in civil law jurisdictions such as Brazil.

It should be reiterated that insureds will also have the facility to reach a multinational insurer for the enforcement of a foreign arbitral award, in a jurisdiction subject to the Convention and relevant domestic laws.

Thus, notwithstanding the caveats regarding inconsistent adoption of the Convention’s principles by member states, the Cayman decision showcases that Civil Law, as represented by Brazil, and English Common Law, as represented by the Commonwealth Caribbean, legal systems can be complimentary when enforcing arbitral awards.

[1] I.e. “the judge knows the law” or, rather, it is the role of the parties to a legal dispute to the adduce the facts, they need not plead or prove the law. It is for the court to apply the law.