In the recent “Sanessol” case[1], the Brazilian Superior Court of Justice (highest court for non-constitutional matters) has decided that the price of a public service can be fixed through arbitration.
Sanessol, which is a private provider rendering water and sewage services to the public, brought an arbitration against the city of Mirassol, State of São Paulo, to raise the price of the services provided there. The claim was based on a right to price increase granted under Brazilian administrative law, if supervening facts make the relationship economically unbalanced. The arbitral tribunal eventually determined that the price in Mirassol should be increased in 17.96%. Following the arbitral tribunal’s decision, the Mirassol city’s regulatory agency for public services (ASAE) issued a ruling prohibiting the price increase. ASAE refused to abide by the arbitral ward because it had not been a party to the arbitral proceeding and is the sole competent body to authorize increase in the price of public services in that city. Sanessol then filed a lawsuit to set aside ASAE’s ruling and enforce the arbitral award, which was denied both in first and second levels.
However, the Brazilian Superior Court of Justice eventually overruled the lower level decisions and granted an injunction to allow Sanessol to increase the price. According to the STJ, the agreement for concession of water and sewage services between Sanessol and the city of Mirassol provided for arbitration as the dispute resolution mechanism, so arbitration was indeed the competent venue to resolve any issue on the price of such services. Moreover, the STJ understood that the fact that ASAE was not a party to the arbitral proceeding did not matter because ASAE approved the concession agreement between Sanessol and Mirassol, with the arbitral clause, which should be tantamount to ASAE’s authorization to the arbitral venue.
This is an important precedent because the 2015 reform to the Brazilian Arbitration Act made clear that state-entities could resolve disputes through arbitral proceedings and, since then, most contracts involving delegation to private parties of public services, such as water and sewage services, contain an arbitration clause. Therefore, it is relevant to build a strong case law in favor of the possibility to discuss in arbitration a wide range of issues, including the price of the services.
Trench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting on foreign law.
[1] AREsp 1905505, Reporting Justice Francisco Falcão, judged on June 16, 2023.
