I agree with Sami's comments.
Brazilian contracting parties + Brazilian matter in controversy = Brazilian 
judge will probably accept jurisdiction and review the case, in accordance 
with Article 88 (I)(II)(III) of the Brazilian Civil Procedure Code, in case 
one of the two Brazilian contracting entities challenge foreign arbitration, 
although parties have deliberately chosen foreign arbitration.



Jos, Margalith
Assessoria Jur?dica
Fone n (11) 3138-7589
Fax n (11) 259-1530
e-mail: margalith@elektro.com.br


>>> <Randy.Young@enron.com> 01/10 10:49 am >>>


For what it is worth, I agree with Sami's concern that we may laboring
under a false sense of security in assuming that a foreign arbitration
provision in a Brazilian contract, between Brazilian contracting parties
relating to a Brazilian matter in controversy would be easily enforced by a
Brazilian court.  Inevitably, we have to fight hard for these "concessions"
in our negotiations and end up leaving a lot of Enron consideration (not to
mention blood and sweat) on the table to get these provisions inserted in
our contracts.  If we are really being "taken" by these crafty Brazilian
lawyers (like the former General Counsel of the Odebrecht Group), I think
we should re-think the policy in this specific instance.

Elektro, because it is the fifth largest electricity LDC in Brazil, has a
long history of litigation in the Sao Paulo courts (we had a number of
cases, you will recall, when we bought it, and have had others since). It
is clearly not the only substantial, high-profile Brazilian company Enron
has down here, making it a little hard for us to negotiate these provisions
as "foreigners"  the way we do elsewhere.

By all means we should check with Jose Emilio, but if he shares Sami's
(and, I have to say, my) concerns, I think we should consider making a
special rule for Brazil-to-Brazil contracting transactions.  Perhaps we
could have the first position be ICC arbitration in Sao Paulo (in
English?), with a forum savings clause that states that if the arbitration
provision is held unenforceable that the litigation will be in the courts
(federal, if possible) of Sao Paulo.  The worst thing that could happen is
that we enter into an arbitration provision, thinking we are safe, and end
up in some court in a smaller city in a backwater part of Brazil where they
are a little loose on the law and perhaps even looser on the concepts of
justice, due process, etc.

If you would like me to be involved in the further discussions, let me
know.

Randy




Sami Arap
01/10/2001 06:20 AM

To:   Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:   Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,
margalith@elektro.com.br, Randy Young@ENRON_DEVELOPMENT, Rob
Walls@ENRON_DEVELOPMENT

Subject:  Re: Elektro's telecom project

Thanks again, Bob.

I will call Jos, Emilio to check.  I agree that a foreign arbitral award is
enforceable in Brazil (whether international or local aspects are under
discussion) provided that you follow the "exequatur" procedure at the
Brazilian Supreme Court.  I have personally participated in the enforcement
of a foreign arbital award against Odebrecht a few years ago.

However, the point I am raising is that in case one of the two Brazilian
contracting entities challenge such foreign arbitration clause and refer
the matter under dispute to a local court, it is most likely that the
Brazilian judge will accept jurisdiction and review the case, in accordance
with Article 88 (I)(II)(III) of the Brazilian Civil Procedure Code.  In
such event, if Enron (please note that I am always & only referring to an
Enron Brazilian entity) agrees to a foreign arbitration clause with a
Brazilian counterparty, it may end up resolving its contractual disputes at
the Brazilian courts (and this is exactly what I am trying to avoid by
suggesting ICC arbitration in S?o Paulo for all contracts entered into
between two Brazilian entities).

Even if the two Brazilian contracting entities refer the matter under
dispute to foreign arbitration and, at the same time or at a later stage,
one of the parties decide to challenge the foreign arbitration clause and
refer the matter to the local courts, it is most likely that the Brazilian
Supreme Court will recognize the local courts jurisdiction and decide that
the foreign arbitration clause was null and void.

I will be in Houston on Friday, January 26, and would very much appreciate
the opportunity to discuss this matter in detail with you and possibly with
Rob Walls and/or Jim Derrick.

Regards,

Sami




Robert C Williams@ENRON_DEVELOPMENT
01/09/2001 10:18 PM

To:   Sami Arap/SA/Enron@ENRON
cc:   Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,
margalith@elektro.com.br@ENRON, Randy Young, Rob Walls

Subject:  Re: Elektro's telecom project  (Document link: Sami Arap)

Sami,

I agree on the issue of Brazilian law.  But on the question of foreign
arbitration, our advice has been that such a clause will be enforced by the
local courts, even if the dispute has no international aspects other than
the parent is foreign (although there was a dissenting opinion from one
lawyer on this issue).   Could you check this point with Jose Emilio Pinto
at Tozzini or Fernando Serec?  As to local arbitration, we have accepted
this where the dollar amount of the disputes is likely to be less than
$500,000.  We should probably also have a cumulative cap of, say, $5
million.   On bigger deals, Rob orJim have resisted local court
jurisdiction.  The most flexible they have been to my knowledge where more
$ is at stake is to agree to ICC-administered arbitration in Sao Paulo.  In
this case, I think we should propose the local arbitration procedure which
would is best calculated to result in an impartial award, whether that be
ad hoc, ICC, FIESP, or Canadian-Brazilian C of C.  Jose Emilio would have a
view on this, too.  Hope this is helpful.

Bob



Sami Arap@ENRON
01/09/2001 04:48 PM

To:   Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Robert C
Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:   margalith@elektro.com.br

Subject:  Re: Elektro's telecom project  (Document link: Robert C Williams)

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Michelle and Bob;

Thanks for the reply.  The issue here is when Brazilian entities (only) are
entering into a contract which obligations will only be performed in Brazil
and such agreement is governed by Brazilian laws.  My understanding of the
Enron arbitration policy (and please correct me if I am wrong) is that when
Enron (as a foreign company) is dealing with foreign governments,
governmental agencies or government-owned companies, or private companies
from the host company, we must follow our internal policy by choosing
preferred arbitration rules, preferred place of arbitration and preferred
governing law.

In case of Elektro, as well as any other Brazilian Enron entity (EAS, ECE
etc), entering into a contract with another Brazilian party with
obligations to be performed in Brazil, such contract will most likely be
governed by Brazilian laws.  Although the parties are in principle able to
select a foreign law in Brazil, the contracting parties must comply with
local public policy.  I strongly advise that two or more Brazilian parties
contracting obligations in Brazil agree that the respective contract be
governed by the laws of Brazil.

With respect to the dispute resolution mechanism, we are all aware of
Enron's policy to avoid referring disputes to the Brazilian courts.  In
case of the above mentioned Elektro deal, the idea is to submit all
contract controversies to arbitration under ICC rules in S?o Paulo.  To me,
the question is whether we use "ad hoc" arbitration OR institutional
arbitration (i.e. submit the matter to FIESP or the Canadian-Brazilian
Chamber of Commerce to act as the "arbitration administrator").

FYI since I joined Enron, I've been told that all of Enron's Brazilian
entities should use foreign arbitration as their contracts' dispute
resolution mechanism.  In my opinion, this concept may not work the way
Enron wants.  If the local Enron entity is dealing with another Brazilian
party and (suppose) both parties have agreed to use ICC arbitration in NY,
it is most likely that, in case the Brazilian counterparty decides to refer
the matter under dispute to the Brazilian courts, the local judge will
accept jurisdiction and review the case.  You may ask "why".  The reason is
because there are two Brazilian parties contracting obligations to be
performed in Brazil under the laws of Brazil; as a consequence a local
judge will accept jurisdiction.

I'd very much like to emphasize that, while working as General Counsel of
the Odebrecht Group, I use to accept foreign arbitration clauses in
contracts entered with Affiliates of foreign companies because I knew that,
at the end of the day, I could always challenge the dispute resolution
mechanism agreed in the contract and refer the matter to the local courts.
Since Odebrecht's counterparties did not do their homework properly ...

Arbitration was first introduced in Brazil through the Federal Constitution
of 1824.  The Civil Code of 1916 ractified the use of arbitration, however,
it obliged the arbitral award to be reviewed by the local courts.  Only in
1996, with the issuance of the Brazilian Arbitration Act (Law 9307), it was
recognized the use of arbitration as a definitive dispute resolution
mechanism without having to submit the final arbitral award to the review
of the local courts.

With respect to enforceability, please note that the arbitral award is
final, binding and enforceable towards the contracting parties.  Only in
case a Party decides not to comply with the final arbital award, the other
Party may refer the arbitral award to a local judge to obtain an
"exequatur".

Please feel free to contact me at the earliest possible convenience to
continue to discuss this arbitration matter.

Rgds,

Sami








Robert C Williams@ENRON_DEVELOPMENT
01/09/2001 03:55 PM

To:   Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:   Sami Arap/SA/Enron@ENRON

Subject:  Re: Elektro's telecom project  (Document link: Sami Arap)

There was a concern at one point that FIESP would favor big, "homegrown"
companies.   I'm sure Sami knows more about this than I do, though.



Michelle Blaine
01/09/2001 12:37 PM

To:   Sami Arap/SA/Enron@ENRON
cc:   Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT

Subject:  Re: Elektro's telecom project  (Document link: Robert C Williams)

Definitely we do not want to submit to the local courts.  Do suggest ICC
arbitration but I am only vaguely familiar with FIESP. I think that is
fine, but please remind me what it is.  I am going to call you from my cell
in a little bit because I have to leave the office.



Sami Arap@ENRON
01/09/2001 11:47 AM

To:   Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Michelle
Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:

Subject:  Elektro's telecom project

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Elektro is participating in the negotiation of a telecom project to form a
SPC among Elektro and four other LDCs (Bandeirante, CPFL, CTEEP and EPTE).
The SPC will be named "SP Telecom".  SP Telecom will develop
telecommunication services using the LDCs' infra-structure.  After SP
Telecom's formation, an investor will be selected to purchase the majority
of the company's shares.  Elektro will have a 5% participation in SP
Telecom and this deal will generate approximately US$10MM in revenues for
Elektro.

The Parties have been discussing a draft MOU for several months, however,
this matter came to my attention only a few weeks ago.  The MOU has been
reviewed by all Parties and is currently on final rounds of negotiation.

There is one pending issue which I need to discuss with you before I get
Jim Derrick's sign-off.  CTEEP and EPTE (state and private owned LDCs) have
requested that the MOU, as well as any other SP Telecom project agreement,
includes a dispute resolution mechanism through the courts of S?o Paulo.  I
have discussed this matter with Jose Margalith (Elektro's in-house counsel)
and Randy Young, and have suggest Margalith to offer ICC arbitration at
FIESP (the S?o Paulo State Industries Federation) as an alternative.

Orlando Gonzalez asked me to assist him to resolve this pending issue at
the earliest possible convenience.  Any thoughts or ideas ?  Please feel
free to call me (55-11-5503-1226).

Tks for your assistance to this matter.

Sami Arap


(See attached file: SP Telecom 08-01-01.ppt)
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