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Libra Group loses arbitration dispute with Codesp

The Brazil-Canada Arbitration and Mediation Centre (Cam-CCBC) has ruled in favour of the Docks Company of the State of São Paulo (Codesp) in a dispute against the Libra Group, which goes back 20 years

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Libra Group loses arbitration dispute with Codesp

Potentially, the Libra Group could be forced to pay back-dated concession obligations amounting to at least R$2.7B (US$734M). Interest will also have to be added to this, plus there is a possible 1% fine.

Arbitration proceeding began in 2015 and, meanwhile, last July, the Libra Group entered into judicially-led financial restructuring.

 

The arbitration began when the then chief minister of ports, Edinho Araújo, signed an amendment to the company’s concessions in the Port of Santos, allowing Libra to extend the length of its concessions for Terminals 33, 34 and 35. However, in May 2018, the Brazilian Court of Audit (TCU) ruled that this early renewal was illegal, given the huge debt that the company had with Codesp because of the dispute. This concession extension was therefore annulled and the concession expiry date re-set to the original May 2020.

 

The dispute between Codesp and Libra involved the concession for Terminal 35 in the Port of Santos. This was awarded to Libra in 1998. However, from the start, the concessionaire declined to pay the agreed amount of port fees, since it argued that the structure of the terminal was not as advertised. This resulted in a court case, in which Codesp maintained that it had adhered to the original terms and conditions set out in the concession and that Libra must pay agreed financial contributions.

Two preliminary injunctions were favourable to both parties and even higher courts were unable to resolve the issue, which prompted both Codesp and Libra to eventually agree to arbitration. However, Cam-CCBC maintained that there was no case for an economic or financial readjustment of the contract. Instead, Libra has been told that it has to pay in full the amounts set out in the concession contract.

 

The courts will now have to decide whether the outstanding debt has to be paid, given the legal implications involved following the restructuring. For its part, Codesp argues that the financial restructuring of the company has nothing to do with the debt, which must therefore be paid in full and as soon as possible.

 

This is a particularly difficult time for the Port of Santos. In October, as part of "Operation Triton," Brazil’s federal police started investigating several contracts signed by Codesp, in particular those relating to reinforcement of quays between warehouses 12A and 23 on the right hand side of the port. Warnings about possible corruption were initially flagged up two years earlier by Fabiana Vieira de Lima, who was part of Codesp’s Treasury Committee.

 

Subsequently, Codesp CEO, José Alex Oliva, was held for questioning by the police and a number of people connected with the port in various ways were arrested, over fraud in relation to three different service contracts.

 

Alex Olica’s replacement as CEO, Luiz Fernando Garcia, subsequently merged Codesp’s Port Planning, Commercial Relations and Leasing Contracts Management departments under the “Commercial Relations” banner, and also merged the Environmental Management and Environmental Control departments, in an effort to cut costs and red tape.

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