Arbitration Strikes Again Within the Public Sector

As of from 21st November 2005, disputes arising from concession contracts entered into with public entities can now be solved by means of arbitration.

Clause XV of article 23, of Federal Law No. 8,987/95 , formerly determined that it was necessary in a concession contract to previously establish the jurisdiction al venue for any future disputes. Moreover, there was also the possibility of choosing amicable ways of solving disputes. However, these alternative forms of dispute resolution were always challenged before the Judiciary, and therefore did not contribute to a secure business environment for foreign and local investors.

The above-mentioned amendment confirms the present tendency whereby the Judiciary and the Legislature have been more receptive to arbitration as a way of solving disputes arising between private and public entities. Recently, in a case involving AES Uruguaiana and Companhia Estadual de Energia do Rio Grande do Sul (CEEE), a quasi-public corporation (sociedade de economia mista), the Superior Court of Justice unanimously ruled in favor of the enforcement of an arbitration clause in an agreement executed between a private party and the public sector. Furthermore, in the context of Public-Private Partnerships, Clause III of article II of Federal Law No. 11,079/04 introduce a major legal breakthrough by permitting the utilization of arbitration clauses in contracts entered into between the private and public sectors.

Foreign investors can already celebrate this new achievement, which will lead to a more secure system for investment. Nonetheless, there are still limitations for arbitration in the public sector, but this advance needs to be seen with modest precaution. Firstly, arbitration continues only to rule about issues relating to freely transferable property rights. Secondly, Federal Law No. 8,666/93, which is the general rule for establishing contract with the Public Administration, does not acknowledge the binding nature of arbitration clauses.

Additional information on the above may be obtained directly from Pierre Emmanuel Bercaire at pierrebercaire@felsberg.com.br or from Roberto Kanitz at robertokanitz@felsberg.com.br

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1.Federal Law No. 8,987/95 has now the following wording: “Article 23-A. Concession contract can foresee private means of dispute resolution resulting from or related to the contract, which can include arbitration, and shall take place in Brazil and in Portuguese, respecting the Federal Law No. 9,307/96”