VRG Linhas Aereas S.A. v Matlin Patterson Global et Al

• Jurisdiction: Cayman Islands
• Judge: Justice Ingrid Mangatai
• Judgment Date: 19 February 2019
• Court: Grand Court (Cayman Islands)
• Docket Number: Cause No.: FSD 137 of 2016 (IMJ)
• Date: 19 February 2019

In the Matter of the Foreign Arbitral Awards Enforcement Law (1997 Revision)

And in the Matter of an Arbitration

Between

VRG Linhas Aereas S.A.

Plaintiff

and

(1) Matlin Patterson Global Opportunities Partners (Cayman) II L.P.

(2) Matlin Patterson Global Opportunities Partners II L.P.

(3) Matlin Patterson Partners II LLC

Defendants

Before:

The Hon. Justice Ingrid Mangatai

Cause No.: FSD 137 of 2016 (IMJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

The Foreign Arbitral Enforcement Awards (1997 Revision) — Section 22 Arbitration Law (2001 Revision) — Section 72(2) The Arbitration Law, 2012 — Convention Award — New York Convention — Order 73, Part II of the Grand Court Rules (1995 Revision) — ICC Arbitration in Brazil — Arbitration — Enforcement — Whether enforcement of award should be refused on grounds that arbitrators lacked jurisdiction or because of breach of natural justice or on grounds of public policy.

IN OPEN COURT, SITTING AS CHAMBERS

Appearances:

Mr. Vernon Flynn QC instructed by Mr. Luke Stockdale of Maples and Calder on behalf of the Applicants/Defendants

Mr. Tom Lowe QC instructed by Mr. Ulrich Payne and Mr. Shaun Maloney of Ogier for the Respondent/Plaintiff

Introduction - The Application

1 This is an application by the Defendants (“the MP Funds”) opposing the attempt by the Plaintiff (“VRG'9 to enforce an arbitration award VRG's predecessor obtained against the MP Funds in Brazil on 2 September 2010 (“the Award”).

2 The MP Funds say that this application for refusal has a good basis for all three reasons (or any one of them) set out below:

• (1) First basis for refusal: Arbitration is a consensual process. However, the MP Funds did not consent to arbitration. They were not a party to the arbitration agreement pursuant to which the arbitral Tribunal purported to exercise jurisdiction. The MP funds therefore are not bound by its decision.

• (2) Second basis for refusal: Arbitration awards that offend against natural justice or the public policy of the enforcing court will not be enforced. The arbitral process in this case was infected by a breach of natural justice of the most fundamental kind: the Tribunal held the MP Funds liable in tort under a particular provision of the Brazilian Civil Code (“BCC”), when no tort claim was pleaded or argued and on which the MP Funds were never given the right to be heard. To enforce an award that so manifestly infringes the audi alteram partem rule is contrary to the public policy of the Cayman Islands (in common with multiple other jurisdictions).

• (3) Third basis for refusal: Even if the parties had consented to arbitration, the parties to an arbitration consent only to the Tribunal determining the particular matter submitted to it for decision by the particular reference to arbitration. The Tribunal must not trespass beyond the scope of those matters and purport to decide matters not submitted to it for decision. That is what it is submitted the Tribunal did in this case. It purported to decide a tort claim against the MP Funds that had never been submitted to it for decision and purported to grant relief that had never been sought from it.

Background

3 The original proceedings were commenced by way of an ex parte Originating Summons filed 1 September 2016 by VRG, seeking the following orders:

• “(1) granting leave, pursuant to section 5 of the Foreign Arbitral Award Enforcement Law (1997 Revision), to enforce the award dated 2 September 2010, in the above mentioned arbitration, of Juan Fernandez-Armesto, Pedro Antonio Batista Martins and Gustavo Jose Mendes Tepedino, the arbitrators therein, in the same manner as a judgment or order of the court to the same effect;

• (2) granting leave to serve this Originating Summons and the Order made herein out of the jurisdiction on the Second Defendant at its registered office at.…”

4 These proceedings came before me on 14 October 2016 and I delivered a Ruling on 26 October 2016, in which I expressed satisfaction that the Plaintiff had a “good prima facie case for enforcement”. I made an order that:

“I. pursuant to section 5 of the Foreign Arbitral Awards Enforcement Law (1997 Revision), the Plaintiff has leave to enforce in the same manner as a judgment or order of the Court to the same effect the following award made in an arbitration between the Plaintiff and the First and Second Defendants;

• (a) The award dated 2 September 2010 (the “Award”) in the above mentioned arbitration, of Juan Fernandez-Armesto, Pedro Antonio Batista Martins and Gustavo Jose Mendes Tepedino, the Arbitrators therein.

• 2. Judgment is hereby entered against the Defendants in the terms of the Award, in the sum of R$92,987,672 in damages, together with interest thereon at the ‘SELIC rate’ from 31 December 2007 to the date of actual and full payment, plus R$4,199,421 in costs.

• 3. The Plaintiff has leave to serve this Order and the Ex Parte Originating summons herein out of jurisdiction…

• 4. Within 14 days after service of this Order, the First Defendant and the Third Defendant may apply to set aside this Order, and the Award shall not be enforced until after the expiration of that period, or, if the First Defendant or the Third Defendant applies within the 14 day period to set aside this Order, until after that application is finally disposed of.

• 5. Within 28 days after service of this Order, the Second Defendant may apply to set aside this Order, and the Award shall not be enforced until after the expiration of that period or, if the Second Defendant applies within the 28 day period to set aside this Order, until after that application is finally disposed of…”

5 On 17 November 2016 and on 1 December 2016, the First and Third Defendants, and the Second Defendant respectively filed summonses seeking orders that:

“1. The Ex Parte Order dated 14 October 2016 be set aside pursuant to GCR 0. 73, r. 31(8) and section 7 of the Foreign Arbitral Awards Enforcement Law (1997 Revision).”

The Witnesses

6 Mr. Mauricio Gomm Santos, who swore three affidavits in these proceedings filed by the MP Funds, is a founding partner of GST LLP, an international dispute resolution practice with offices in Miami and Washington D.C. He is a citizen of Brazil and of the United States of America, and is a lawyer qualified to practice in Brazil and New York, and a Certified Foreign Legal Consultant in Florida. He has been in private practice for over 30 years, specializing in international arbitration and litigation disputes in Brazil and international arbitration in the United States. The MP Funds also put in evidence three affidavits of Robert Weiss, General Counsel of Matlin Patterson Global Advisers LLC, as well as the affidavit of Pedro Soares Maciel. Mr. Maciel was Lead Counsel to the First and Second Defendants in the Arbitration which resulted in the Award which VRG is seeking to enforce. Mr. Gomm Santos gave live evidence, and was cross-examined by Mr. Lowe QC on behalf of VRG.

7 Two witnesses were called to give live evidence by VRG. They were assisted by Portuguese translators. Although they swore their affidavits in English, Mr. Lowe QC indicated that these witnesses, whilst comfortable with expressing themselves in English in, for example Reports, for the purposes of cross-examination wanted to ensure they understood precisely what the dialogue is and any nuances or technicalities in the questions. The witnesses who gave live evidence were Professor Carlos Alberto Carmona, a Professor at the University of Sao Paulo, Brazil, expert in civil procedure, litigation and arbitration, and who has acted as an arbitrator in domestic arbitrations in Brazil, and Mr. Gilberto Giusti. Mr. Giusti, amongst other qualifications, acts as an arbitrator in complex civil, commercial, corporate, securities and construction disputes. Both Professor Carmona and Mr. Giusti were cross-examined by Mr. Flynn Q.C. on behalf of the MP Funds.

The legal framework and the grounds on which the enforcing court may refuse recognition and enforcement under the New York Convention

8 The following aspects of this matter are common ground:

• (a) that the question of whether the Court should refuse to recognize and enforce the Award is governed by the Foreign Arbitral Awards Enforcement Law 1975 (1997 Revision) (the “Enforcement Law”). The Enforcement Law gives effect to the New York Convention 1958 as a matter of Cayman Islands Law.

• (b) that Brazil is a party to the Convention.

• (c) that it is an aim of the New York Convention to achieve the effective and speedy enforcement of international arbitration awards falling within its scope. The New in its favour can enforce it in Convention jurisdictions. This is reflected in the Enforcement Law which provides that “subject to this Law” a Convention Award shall be enforceable “in the same manner as an award under section 22 of the Arbitration Law (1996 Revision) and shall be treated as binding for all purposes on the persons between whom it was made.” (Section 5).

The MP Funds Submissions

9 However, Mr. Flynn Q.C. places emphasis in the MP Funds' Skeleton Argument (“SKA”) (at paragraph 4), on the fact that critical to the success of this regime, is that it includes safeguards to protect against fundamental injustice. He submits, (and this is accepted by VRG), that it is the corollary of the ability speedily to enforce a Convention award across the globe, that such an award must not contravene basic principles of fairness. Article 5 of the Convention outlines the circumstances in which the enforcing court can refuse to recognize and enforce the award. These are reflected in terms in the Enforcement Law, at section 7. Emphasis was placed by Learned Queen's Counsel on those terms, relevant to this case, as follows:

“Art. 5.1 Recognition and enforcement of the award may be refused, at the request of the party against...