Cayman Islands Court Of Appeal Enforces Foreign Arbitral Award In Favour Of Brazilian Airline

• Published date: 17 August 2020
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation, Civil Law
• Law Firm: Ogier
• Author: William Jones Esq, Marc Kish and Anna Snead

Introduction

1. The Court of Appeal of the Cayman Islands has overturned the earlier decision of the Grand Court thereby allowing the enforcement of a R$92,987,672 ICC arbitration award, issued in 2007 in favour of a Brazilian airline. The Brazilian ICC arbitration award was decided under Brazilian law and upheld by the Brazilian courts in annulment proceedings brought by the award debtors. The Court of Appeal has now held that the award debtors and respondents to the appeal are estopped from challenging enforcement of the award by virtue of Brazilian court decisions, in which the various challenges had already been raised and dismissed.
   
2. Ogier successfully acted for the appellant in this appeal, Brazil's Gol Linhas Aereas SA (Gol), with Leading Counsel, Thomas Lowe QC of Wilberforce Chambers, and Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados of Brazil.
   
3. The decision raises important and difficult issues relating to the enforcement of foreign arbitral awards which are the subject of robust challenge before the courts of supervisory jurisdiction. In particular, the decision is likely to be of particular interest to practitioners in common law jurisdictions who seek to enforce arbitral awards obtained in civil law jurisdictions.

Background Facts

4. The respondents, Matlinpatterson Global Opportunities Partners (Cayman) II LP, Matlinpatterson Global Opportunities Partners II LP and their general partner Matlinpatterson Global Partners II LLC (collectively, the MP Funds) are private investment funds that specialise in "distressed investing". In 2005, the MP Funds established Volo Logistics, a Delaware company to serve as an investment vehicle for pursuing an opportunity in the Brazilian aviation industry. Volo Logistics, and three Brazilian investors, established Volo do Brasil SA (Volo dB) which, in 2006, purchased Varilog Logistica SA (Varilog) which operated a Brazilian cargo airline. Later in 2006, Volo dB and Varilog then purchased a Brazilian passenger airline through a special purpose vehicle VRG Linhas Aereas SA (VRG).
   
5. Pursuant to a Share Purchase and Sale Agreement dated 28 March 2007 (PSA), Volo dB and Varilog (the Sellers) sold 100% of their shares in VRG to a Brazilian company, GTI SA (GTI, the Purchaser). GTI was subsequently merged into VRG, which has now been renamed Gol. The MP Funds were not parties to the PSA containing the arbitration agreement, which provided for an ICC arbitration with its seat in S'o Paulo, but subsequently signed an addendum which joined them to a non-compete provision in the PSA.
   
6. A dispute subsequently arose concerning the working capital of GTI (or VRG, as it had become) and a demand for an adjustment to the purchase price paid under the PSA. VRG commenced an arbitration against not only the sellers (Varilog and Volo dB) but also the MP Funds, premised on the MP Funds' fraudulent misuse of the sellers in the sale of the airline. VRG argued that the corporate veil should be lifted, as the MP Funds "were the alter egos of Varilog and Volo dB".
   
7. The MP Funds argued from the outset that they were not parties to the PSA and therefore disputed the arbitrators' jurisdiction over them (alternatively, they argued that even if they were, the scope of any arbitration agreement could not extend beyond their non-compete obligations in the PSA). In April 2009, the arbitral tribunal, exercising their rights of competence competence, issued a partial award rejecting the MP funds' jurisdictional objections (the Partial Award). The following year, in September 2010, the tribunal issued a final award finding that fraud had been proven (the Final Award). The tribunal held the sellers liable for R$92,987,672 under the price adjustment clause of the PSA, and although it rejected VRG's claim that the MP Funds were alter egos...