Gol Linhas Aereas SA (formerly VRG Linhas Aereas SA) v MatlinPatterson Global Opportunities Partners (Cayman) II LP and Others
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hamblen,Lord Leggatt,Lord Kitchin,Lord Lloyd-Jones,Sir Julian Flaux |
| Judgment Date | 19 May 2022 |
| Neutral Citation | [2022] UKPC 21 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 0086 of 2020 |
(formerly VRG Linhas Aereas SA)
[2022] UKPC 21
Lord Kitchin
Lord Hamblen
Lord Leggatt
Lord Lloyd-Jones
Sir Julian Flaux
Privy Council Appeal No 0086 of 2020
Easter Term
From the Court of Appeal of the Cayman Islands
Appellants
Vernon Flynn QC
Emily Wood
(Instructed by Myers Fletcher & Gordon (London))
Respondent
Thomas Lowe QC
William Jones Nour Khaleq
(Instructed by Sharpe Pritchard LLP)
Appellants:-
(1) MatlinPatterson Global Opportunities Partners (Cayman) II LP
(2) MatlinPatterson Global Opportunities Partners II LP
(3) MatlinPatterson Global Opportunities Partners II LLC
Lord Hamblen AND( with whom Lord Kitchin, Lord Lloyd-Jones and Sir Julian Flaux agree)
The question on this appeal is whether the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by the United Nations Conference on International Commercial Arbitration in New York on 10 June 1958 (the “New York Convention”), as implemented in the Cayman Islands by the Foreign Arbitral Awards Enforcement Act 1975 (1997 Revision) (“the 1975 Act”), requires the enforcement in the Cayman Islands of an arbitral award in favour of the respondent.
The arbitration in which the award was made took place in Brazil and was decided in accordance with Brazilian law. Proceedings brought by the appellants in the Brazilian courts seeking to have the award set aside were unsuccessful and all rights of appeal in Brazil have now been exhausted. Insofar as the grounds on which the appellants resist enforcement of the award in the Cayman Islands are similar to grounds of challenge rejected by the Brazilian courts, questions arise as to whether the decisions of the Brazilian courts create an issue estoppel which prevents the appellants from relying on those grounds in this action.
The grounds on which the appellants have opposed the respondent's application to enforce the award are, in summary, that: (i) they were not party to the arbitration agreement; (ii) there was a violation of due process as the arbitral tribunal held them liable on a legal basis which they were not given an opportunity to address; and (iii) the legal ground on which the arbitral tribunal held them liable was outside the scope of the submission to arbitration. The same or very similar arguments were all made in support of the unsuccessful application to set aside the award in Brazil.
At first instance the judge upheld all the grounds of challenge and therefore refused enforcement of the award. The Cayman Court of Appeal allowed the respondent's appeal on all grounds. From that decision, this appeal lies as of right to the Board.
The first and second appellants (“the MP Funds”) are, respectively, a Cayman Islands exempted limited partnership and a Delaware limited partnership which together conduct business as a private equity investment fund with its headquarters in New York. The third appellant is the general partner of the two limited partnerships.
The respondent is a Brazilian corporation which has been referred to in these proceedings by its former name of VRG Linhas Aereas SA (“VRG”). VRG is a company in a Brazilian airline group that conducts business under the name of Gol Airlines.
The dispute submitted to arbitration arose under a share purchase and sale agreement dated 28 March 2007 (“the Agreement”) for the sale of the shares in the company which operated Gol Airlines (“the airline company”). The Agreement is in the Portuguese language and is governed by Brazilian law. The purchaser of the shares was GTI SA which was merged into VRG which became its universal successor under Brazilian law. The sellers were two subsidiaries of a Delaware company, Volo Logistics LLC, established by the MP Funds as a vehicle to invest in the Brazilian airline industry. The first of these subsidiaries, Volo do Brasil SA, was a Brazilian corporation, in which Volo Logistics LLC owned 20% of the voting shares with the remaining 80% owned by three Brazilian individuals. In 2006 Volo do Brasil SA purchased Varig Logistica SA, which operated a Brazilian cargo airline. Those two companies (“the Sellers”) then established a wholly owned subsidiary which acquired the associated passenger airline business and was the airline company whose shares were sold under the Agreement.
The MP Funds were not named as parties and were not signatories of the Agreement. However, they signed an addendum to it giving an undertaking to VRG not to compete with the airline business for a period of time. The addendum (as translated) stated that it constituted “a firm and valid commitment by and between the parties, including for the purposes of supplementing the terms of the above captioned Agreement”.
Clause 5 of the Agreement provided a procedure for adjusting the purchase price after it was paid to reflect changes in the working capital shown in the accounts of the airline company between the date of the Agreement and the date of regulatory approval for the sale. Under this procedure the Sellers put forward adjusted figures for working capital confirmed by their accountants, PwC, and VRG appointed its own accounting firm, Ernst & Young, to validate the calculation. In the event, the amount of the adjustment was not agreed and VRG referred the dispute to arbitration.
Clause 14 of the Agreement is an arbitration agreement which (translated into English) included the following terms:
“ARBITRATION, APPLICABLE LAW AND ELECTION OF JURISDICTION
Clause 14.1. All disputes arising from or related to this Agreement, including those concerning its validity, effectiveness, breach, interpretation, termination, rescission and their corollaries, will be resolved by arbitration, in accordance with the provisions of Law No 9.307/96 (“Arbitration Law”), pursuant to the conditions below.
Clause 14.2. The dispute will be submitted to the CCI … in accordance with its Regulations … in effect as of the date of the request for arbitration.
Clause 14.3. The hearings, petitions and documents of the arbitration will be conducted in the Portuguese language and, if requested by any of the Parties or the arbitrator, will be translated simultaneously into the English language. The place of the arbitration will be the city of Sao Paulo.
Clause 14.5. The arbitrators selected must know the English language, regardless of their nationality.
Clause 14.6. This Agreement will be interpreted and governed by the laws of Brazil and the Arbitration Panel will decide on disputes and disagreements in accordance with the laws of Brazil, ignoring any other rule of international private law that may cause the laws of any other country or jurisdiction other than Brazil to be applicable.
Clause 14.7. The Arbitration Panel shall decide the matters submitted to it only in accordance with provisions of law, and must base their decision on the laws of Brazil. …”
The “Arbitration Law” referred to in clause 14.1 is the Brazilian Arbitration Law No 9.307/96. The “CCI” referred to in clause 14.2 is the International Chamber of Commerce (“ICC”).
The arbitration proceedings were brought by VRG against both the Sellers and the MP Funds. VRG, the Sellers and the MP Funds were each represented by Brazilian lawyers. The members of the arbitral tribunal were all distinguished lawyers and arbitrators. The chairman, Dr Juan Fernández-Armesto, is a Spanish lawyer and arbitrator, who has been President of the Spanish Securities Commission and a Professor of commercial law and is currently a vice-president of the International Council for Commercial Arbitration. The two co-arbitrators were both Brazilian lawyers. One, Pedro Batista Martins, is (among other things) an officer of the Commercial Committee of the Latin American Arbitration Association and the other, Gustavo Tepedino, is a Professor of civil law at the State University of Rio de Janeiro.
In the arbitration, VRG claimed a sum from the Sellers said to be payable under the price adjustment clause. The same sum was claimed from the MP Funds. VRG alleged that Mr Lap Chan, a director of the MP Funds who negotiated the Agreement with VRG, had fraudulently manipulated the figures for working capital provided to VRG on which the purchase price was based. VRG argued that this fraud constituted an abuse of legal personality which justified piercing the corporate veil and holding the MP Funds jointly and severally liable with the Sellers under article 50 of the Brazilian Civil Code for the amount of the required price adjustment.
The MP Funds disputed the jurisdiction of the tribunal over them, arguing that they were not parties to the Agreement or the arbitration agreement contained within it. The arbitrators considered the question of jurisdiction as a preliminary issue and made a partial award in which they ruled, by a majority, that they did have jurisdiction over the MP Funds. This was on the basis that the MP Funds had signed the addendum which was an integral part of the Agreement such that the MP Funds were party to all the terms of the Agreement, including the arbitration agreement. The MP Funds continued to take part in the arbitration under protest and without prejudice to their position that they were not parties to the arbitration agreement.
On 2 September 2010, the tribunal issued the award which VRG is seeking to enforce. The tribunal found the Sellers and the MP Funds jointly and severally liable for the amount of the purchase price adjustment in the sum of BRL$92,987,672, together with interest and costs. The tribunal rejected VRG's legal argument for holding the MP Funds liable, which involved piercing the corporate...
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