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Avocats, autres représentants, expert(s), secrétaire du tribunal

Award

I. PERSONS WHO PARTICIPATED IN THE ARBITRATION

1. CLAIMANT

1.
Claimant is, currently, VRG Linhas Aéreas S.A. ["VRG," "Claimant" or "Purchaser"]. VRG is universal successor to GTI S.A., original Claimant in this arbitration ["GTI"], with head office at Avenida Vinte de Janeiro, s/no, Passenger Terminal No. 2, Rio de Janeiro International Airport/Galeão – Antonio Carlos Jobim, Departure Level between Axes 53-54/E-G, Segment D – CEP [postal code] 21,941-570, in the City and State of Rio de Janeiro, Brazil.
2.
GTI integrates the Gol Group.
3.
Claimant has been represented in this arbitration primarily by Flávio Pereira Lima, Daniel Calhman de Miranda and Carlo de Lima Verona, all of them from the law firm of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga, located at Al. Joaquim Eugênio de Lima, 447 – 01403001, São Paulo, Brazil, such as stated in the power of attorney attached to the case records.

2. RESPONDENTS

4.
Respondent 1 is VARIG LOGÍSTICA S.A. ["VLog," "Respondent 1" or "Seller"], a Brazilian corporation with head office at Rua Gomes de Carvalho, no 1609, Vila Olímpia – CEP 04547-006, São Paulo, Brazil.
5.
Respondent 2 is VOLO DO BRASIL S.A. ["Volo DB" or "Respondent 2"], a Brazilian corporation with head office at Rua Padre João Manuel no 450, CJ. 121 – CEP 01411-000, São Paulo, Brazil. Respondent 3 holds 20% of Respondent 2's common shares, while Messrs. Marco Antônio Audi ["Mr. Audi"], Marcos Michel Haftel ["Mr. Haftel"] and Luís Eduardo Gallo ["Mr. Gallo"], collectively referred to as ["Brazilian Partners"], held 80% of its common shares.
6.
VLog and Volo DB shall be collectively referred to as [the "Sellers"].
7.
Respondent 3 was the company Volo Logistics LLC ["Volo Logistics" or "Respondent 3"], a legal entity organized under the Laws of Delaware, U.S.A., with head office at 2711 Centerville Road, Suite 400 – Delaware, U.S.A., dismissed pursuant to the partial award on jurisdiction handed down on April 7, 2009 [the "Partial Award"].
8.
Respondents 4 are Matlinpatterson Global Opportunities Partners II L.P. (U.S.A.) and Matlinpatterson Global Opportunities Partners (CAYMAN) II L.P., legal entities organized under the Laws of Delaware, U.S.A., with head office at 520 Madison Avenue, 35th floor – New York, NY 10022, U.S.A. [collectively "MatlinPatterson," the "MatlinPatterson" fund or "Respondent 4"]. Respondent 4 is the holder of all shares in Respondent 3.
9.
Respondents 1 and 2 have been represented in this arbitration primarily by Roberto Teixeira and Larissa Teixeira Martins, from the law firm of Teixeira Martins Advogados, located at Rua Padre João Manuel, no 755, Conjunto [suite] 131 – Jardim Paulista, São Paulo, Brazil, such as stated in the power of attorney attached to the case records.
10.
Respondent 4 was initially represented in this arbitration by Cristiano Zanin Martins and Guilherme de Andrade Campos Abdalla, also from the law firm of Teixeira Martins Advogados, at the aforementioned address, such as stated in the power of attorney attached to the case records. After the rendering of the partial award on jurisdiction, Respondent 4 has been represented by Pedro Soares Maciel, Mateus Aimoré and Alfred Habib Siouf Filho from the law firm of Veirano Advogados, located at Avenida das Nações Unidas No. 12995, 18o andar, São Paulo Brazil, according to the delegation of powers attached to the case records.

3. THE ARBITRATION TRIBUNAL

11.
The Arbitration Tribunal is comprised of co-arbitrator Gustavo José Mendes Tepedino, with offices at Rua da Assembléia, 58, 10o andar – Centro [Downtown] – 20011, Rio de Janeiro, Brazil; co-arbitrator Pedro Antônio Batista Martins, resident at Rua Timóteo da Costa, 371/301, Leblon – 22450, Rio de Janeiro, Brazil; and its Chairman, Juan Fernández-Armesto, with offices at General Pardiñas 102, 28006 Madrid, Spain.
12.
The Administrative Secretary for this proceeding is Alexandre Soveral Martins, with offices at Avenida Sá da Bandeira, 114, 1o – 3000-350 Coimbra, Portugal, pursuant to paragraph 14 of the Terms of Reference ["AdM"].

4. ICC'S COUNCILLOR

13.
The Councilor of the Secretariat of the International Court of Arbitration [the "Court"] of the International Chamber of Commerce ["ICC"] in charge of this case is José Ricardo Feris, assisted by Maria Cláudia de Assis Procopiak, both with professional domicile at Cours Albert 1er 38, 75008 Paris, France.

II. BACKGROUND

14.
In the Partial Award rendered, the Arbitration Tribunal summarized the procedural background on this arbitration up until the hearing on jurisdiction.1 Wherefore, the Arbitration Tribunal refers to the procedural background already therein described.

1. THE ARBITRATION AGREEMENT

15.
One should recall that the Agreement for Sale and Purchase of Equity Control in VRG Linhas Aéreas S/A and Other Covenants [the "Agreement"], executed on March 28, 2007 between VLog and Volo DB, as Sellers, and GTI as Purchaser, contains an arbitration agreement [the "Arbitration Agreement"] under Section 14, which reads as follows:

"Section Fourteen

Arbitration, Governing Law and Election of Venue

Section 14.1 – All disputes arising out of or in connection with this instrument, including but not limited to those involving its validity, effectiveness, violation, construction, termination, rescission and its consequences shall be resolved by arbitration, as provided under Law 9,307/96 (the "Arbitration Act"), pursuant to the following conditions.

Section 14.2 – The dispute shall be submitted to the ICC ("ICC") in accordance with its Rules (the "Rules") in effect on the date of the request for commencement of arbitration.

Section 14.3 – The hearings, pleadings and exhibits in the arbitration shall be conducted in the Portuguese language and, if requested by any of the parties or by the arbitrator, simultaneous translation into the English language shall be provided. The place of arbitration shall be the City of São Paulo.

Section 14.4 – Except in the case of more than one claimant or respondent, whereupon the claimants, jointly, and the respondents, jointly, shall appoint one arbitrator, the dispute shall be analyzed and decided by three (3) arbitrators, each one of them independent and impartial (the "Arbitration Tribunal"), and it shall be up to each Party to nominate one arbitrator within the term provided for in the Rules, which term may never be greater than 20 days. The two above-nominated arbitrators shall appoint, by mutual agreement, a third arbitrator who shall officiate as Chairman of the Arbitration Tribunal. If the two (2) arbitrators nominated by the Parties fail to appoint a third arbitrator within ten (10) days measured [sic] [misspelling in Portuguese] from the date the last one of the two (2) arbitrators is appointed, or either party involved fails to nominate its arbitrator, it shall be up to the ICC to nominate a third arbitrator.

Section 14.5. The chosen arbitrators shall have a command of the English language, whatever their nationality might be.

Section 14.6. This Agreement shall be construed in accordance with and governed by the laws of Brazil, and the Arbitration Tribunal shall decide the dispute and litigation in accordance with the laws of Brazil, disregarding any rule of private international law [conflict of laws] that might cause the laws of any country or jurisdiction other than Brazil to apply.

Section 14.7. The Arbitration Tribunal shall decide the matters submitted to it only pursuant to legal provisions, and shall ground its decision pursuant to the laws of Brazil.

Section 14.8. The arbitral award shall be rendered no later than six (6) months from the installation of the Arbitration Tribunal, in writing and in Portuguese, and if requested, with a translation into the English language, and shall contain the grounds for the arbitral decision and be signed by all arbitrators comprising the Arbitration Tribunal. In the event of any divergence between the Portuguese and English versions of the arbitral award, the Portuguese version shall prevail.

Section 14.9. At any time before the installation of the Arbitration Tribunal, any Party may apply to any court of competent jurisdiction of the Judiciary Branch for the granting of injunctions aimed at protecting or safeguarding a right, or for purposes of payment into court, prior to the installation of the arbitration tribunal, provided this shall not be construed as a waiver of arbitration. To provide said jurisdictional relief, the Parties elect the Central Venue of the São Paulo Judicial District, and expressly waive any other venue, however privileged such venue may be. After the Arbitration Tribunal is installed, any injunctions shall be requested from the latter.

Section 14.10. Appearing in this instrument to express its full awareness of this transaction, is VRG, a business company under private law with head office at Avenida Vinte de Janeiro, no 330, Cargo Sector O, Ilha do Governador [Governor's Island], State of Rio de Janeiro – CEP 21941-570, registered in the CNPJ [National Register of Legal Entities – federal taxpayer number] under No. 07,575,651/0001-59, herein represented by its attorneys-in-fact Marco Antonio Audi and Luiz Eduardo Gallo, both described above.

Section 14.11. Appearing in this instrument, as intervening and consenting party and guarantor, is the company Gol Linhas Aéreas Inteligentes S/A, a company with head office at Rua Gomes de Carvalho, no 1,629, 15o andar – Vila Olímpia – CEP 04547-006, in the City of São Paulo, State of São Paulo, registered in the CNPJ/MF [Ministry of Finance] under No. 06,164,253/0001-87, herein represented pursuant to Article 20(a) of its Articles of Incorporation, by its President [Diretor Executivo], Constantino de Oliveira Júnior, Brazilian citizen, married, [ID card] No. 929,100-SEP/DF, registered in the C.P.F. [Individual Taxpayers Register] under No. 417,942,901-25, and by its Vice President for Investor Relations [Diretor de Relações com Investidores], Richard Freenan Lark Jr., Brazilian citizen, single, R.G. [ID card] No. 50,440,294-8-SSP/SP, registered in the C.P.F. under No. 214,996,428-73, both elected at the Board of Directors' Meeting held on March 27, 2006, having its Minutes duly recorded at the Commercial Registry of the State of São Paulo under No. 94,807/06-1, in session on April 7, 2006. The guarantor expressly assumes, jointly with GTI, jointly liability to the Sellers for all obligations undertaken in this agreement."

16.
In accordance with Section 14.3 of the Agreement, the language for arbitration is Portuguese, and the place of arbitration is the city of São Paulo, Brazil. It should be mentioned that none of the parties requested, pursuant to Section 14.8 of the Agreement, a translation of this award into the English language.

2. PARTIAL AWARD

17.
It should be mentioned that Claimant in the AdM [Terms of Reference] had moved, with respect to the issue of Respondents 3 and 4 having standing, "preliminarily, for an acknowledgment that the Arbitration Tribunal has jurisdiction to examine the controversy not only against the signatory parties to the Agreement, but also against [Volo Logistics] and [the] MatlinPatterson [fund], which shall be bound by the Arbitration Tribunal's ruling."
18.
Respondents 1 and 2, in turn, stated2 in their brief that "because of the impossibility of Claimant making any unilateral modification of the Agreement, including having Respondents 3 and 4 join in the arbitral proceeding focused on herein," they believed that "Respondents 3 and 4 should be dismissed ‘prima facie' from the arbitral proceeding in question."
19.
Respondents 3 and 4 argued for their immediate dismissal from this arbitral proceeding, claiming that they "were joined in this arbitral proceeding even though they are not signatories of the arbitration agreement on which it is based,"3 and stated that they "do not acknowledge the jurisdiction of the Arbitration Tribunal, and reserve their right to oppose any rulings rendered by it."
20.
The Arbitration Tribunal, after the hearing on jurisdiction held on December 15 and 16, 2009, in Rio de Janeiro, and as Procedural Order ["OP"] No. 2 allowed it to do, ruled in its Partial Award for the standing to be sued of Respondents 3 and 4, thus bifurcating this arbitral proceeding.
21.
As regards Respondent 4, the Arbitration Tribunal concluded that as the latter was a signatory of Addendum No. SL/VR/005 ["Addendum 5"] to the Agreement, "there was a valid Arbitration Agreement, executed by the signatories of the Agreement and its Addenda, to resolve by way of arbitration all controversies arising between the parties to the contractual relationship."4 The Arbitration Tribunal thus concluded that it had jurisdiction to rule on the controversies between Claimant and Respondent 4.
22.
Now, as far as the binding of Respondent 3 was concerned, the Tribunal analyzed whether the latter would have been bound by the Arbitration Agreement by tacit consent, and concluded that Respondent 3 "at no time stated either expressly or tacitly its will to submit to the Arbitration Agreement,"5 and subsequently analyzed if lifting the corporate veil would be admissible,6 whether because of the alleged undercapitalization of VLog or because of possible fraud against article 181 of the Brazilian Aviation Code [the "CBA"].
23.
The Arbitration Tribunal, after analyzing the facts, concluded that Respondent 3's investment in Respondent 1 could not be qualified as shammed,7 and that on the other hand, in light of the preliminary ruling by the Judge of the 5th Federal Division of Brasilia, it could not be regarded as proven that Respondent 3 had created the corporate structure with the intention of circumventing the application of CBA article 181 or of committing fraud against the Brazilian legal system.8 Consequently, the Arbitration Tribunal ruled that Respondent 3 did not engage in a shammed transaction, such as might justify lifting the corporate veil.
24.
With these legal grounds, the Arbitration Tribunal issued the following ruling:9

"1. To declare that it has jurisdiction to rule on motions entered by Claimant in this arbitration relative to Respondent 4.

2. To declare that it lacks jurisdiction to rule on motions entered by Claimant in this arbitration relative to Respondent 3.

3. To postpone any other ruling, including a ruling on costs, until the final award."

3. INJUNCTIONS

25.
On October 17, 2008, the Arbitration Tribunal issued OP [Procedural Order] No. 3, in which it dictated in Claimant's favor, on a highly injunctive basis, provisional remedies pursuant to article 23 of the ICC Rules:

"To order Respondents 1, 2 and 3 to refrain from engaging in any and all action prone to expropriate, adjudicate, transfer or dispose of the Gol Shares, except pursuant to the Arbitration Tribunal's prior and express authorization.

To order Claimant deliver to the Arbitration Tribunal, as a pledge, within one month from the date these provisional remedies are granted, a banking guarantee upon first demand in the amount of US$ 2,000,000, worded in a manner acceptable to the Tribunal, and guaranteeing against the risks of possible damage to Respondents."

26.
Claimant provided said banking guarantee on December 3, 2008, and its wording was challenged by Respondents.10 Such challenge caused the Tribunal to order Claimant provide a new banking guarantee on such terms as defined by the Arbitration Tribunal.
27.
As this arbitration is finalized, and Respondents have not alleged, much less proven, any damage as a result of the injunctions granted hereunder, the Arbitration Tribunal shall rule to return the banking guarantees to Claimant, at its request.

4. PROCEDURAL ORDER No. 5

28.
As was stated in the Partial Award,11 the Arbitration Tribunal issued, on April 24, 2009, an OP on the development of the arbitral proceeding,12 which also modified OP No. 3 regarding the injunctions.
29.
This OP was sent to the parties in draft form on April 16, 2009, and was discussed during a conference call on April 24, 2009.
30.
In OP No. 5, the Arbitration Tribunal ruled that in order to answer, in the Final Award, the questions contained in the Terms of Reference, the parties should submit new written communications of allegations on merit, and Claimant should clarify in a concrete fashion:

"(i) whether it agrees or disagrees with the balance sheet attached as Appendix III to the Agreement and prepared by PwC [the "Reviewed Balance Sheet"], and in case it disagrees, to identify and justify each caption and amount with regard to which it disagrees, observing – such as required in section 5.1.1 – "only and solely the same items, the same methodology referred to in section 5.1, having as a base-date the day prior to the event dealt with in Section 9.2;" (ii) the factual and legal grounds whereby it believes that Respondents 2 and 4 could be liable for a possible price adjustment."

31.
Respondents should, in a concrete fashion, contest:

"(i) Claimant's allegations regarding any disagreement to the balance sheet attached as Appendix III to the Agreement, observing – such as required in section 5.1.1 – "only and solely the same items, the same methodology referred to in section 5.1, having as a base-date the day prior to the event dealt with in Section 9.2;" (ii) the liability pertaining to Respondent 4's liability in light of a possible price adjustment."

32.
In the same OP No. 5, the Arbitration Tribunal invited the parties to enter or reiterate a motion for production of evidence in the counterparty's possession.
33.
On the other hand, the Arbitration Tribunal, with the parties' agreement, modified item 1 of OP No. 3, which thereafter was on record as follows:

"To order Respondents 1 and 2 to refrain from engaging in any and all act prone to expropriate, adjudicate, transfer or dispose of the Gol Shares, except pursuant to a prior and express authorization from the Arbitration Tribunal or from the Court responsible for Respondent 1's Judicial Reorganization case."

5. OBJECTIONS TO PROCEDURAL ORDER No. 5

34.
Still in OP No. 5, the parties were granted four weeks time in which to "submit allegations regarding other claims."13
35.
So, and within the time period granted by the Arbitration Tribunal, Respondents 1 and 2 submitted a written communication titled "Objection to Procedural Order No. 5."14
36.
After the time period Claimant was granted to contest it, the latter submitted a communication titled "Claimant's Response to the Objection of Respondents 1 and 2 to Procedural Order No. 5."15
37.
Wherefore, the Arbitration Tribunal gave an answer to Respondents' allegations, and provided the necessary clarifications contained in communication A 32.
38.
However, on June 8, 2009, Respondents 1 and 2 submitted communication R1232, titled "New material facts: a necessary modification of Procedural Order No. 5," in which they informed the Tribunal that "all prime [audit] firms queried by the respondents declined the invitation, and would not agree to do the work requested, consequently rendering the evidentiary phase itself unviable in such manner as allowed by the Arbitration Tribunal." Respondents 1 and 2 concluded by moving that the Arbitration Tribunal appoint an audit firm to review the balance sheet submitted by PwC.
39.
Respondent 4,16 in turn, informed the Arbitration Tribunal that it agreed to the motion submitted by Respondents 1 and 2.
40.
Claimant, in its communication C 34, moved that the Arbitration Tribunal uphold OP No. 3 and OP No. 5.
41.
The Arbitration Tribunal then ruled17 to uphold OP No. 5, clarifying that the pool of professionals capable of performing the accounting examination requested by the Arbitration Tribunal was very large, and was not circumscribed to top audit firms.
42.
On June 22, 2009, Respondents 1 and 2 submitted an objection to communication A 3418 regarding the non-use of top audit firms, and once again moved to revise OP No. 5.
43.
The Arbitration Tribunal ruled19 to uphold the wording of OP No. 5.

6. MOTION TO DISCLOSE DOCUMENTS

44.
Claimant submitted its new motion to disclose documents in Respondents' possession on May 8, 2009.20
45.
The Arbitration Tribunal granted, in its communication A 29, a time period for Respondents to attach the documents or to oppose with grounds the motion to disclose such documents.
46.
Respondents opposed,21 with one exception, the disclosure of documents.
47.
Wherefore, the Arbitration Tribunal ruled on the terms of communication A 31, and ordered Respondents submit certain documents.
48.
On June 22, 2009, Respondents 1 and 2 submitted their motion to disclose documents in Claimant's possession.22
49.
Claimant responded to Respondents' motion, in communication A 35, on June 25, 2009,23 reserving the right to respond to Respondents' motion to disclose "other documents" by the end of the time period granted by the Arbitration Tribunal (July 1, 2009), and refused to disclose all accounting documents they had moved to disclose, except for one such item.
50.
On July 1, 2009, Claimant refused to submit documents qualified by Respondents as "other documents."
51.
On July 2, 2009, Respondents 1 and 2 submitted a communication titled "Reply to Claimant's Motion to disclose Documents,"24 in which they reiterated that Claimant should be required to disclose certain documents.
52.
Given such communications from the parties, the Arbitration Tribunal set up a conference call with the parties on July 8, 2009, with the goal of (i) discussing the motion to disclose documents entered by Respondents 1 and 2, and (ii) setting up a hearing.
53.
Minutes of said conference call were drawn up and signed by the Administrative Secretary.
54.
On July 15, 2009, Respondents 1 and 2 informed the Arbitration Tribunal that Claimant had not yet complied with the Arbitration Tribunal's order of July 8th to disclose documents in its possession, and moved further for a copy of said documents.
55.
Consequently, the Arbitration Tribunal held a conference call on July 22, 2009 and issued communication A 43.

7. MODIFICATION OF INJUNCTIONS

56.
The Arbitration Tribunal, after briefing by the parties,25 issued OP No. 6, and ruled:

"I. To order Respondents 1 and 2 to refrain from performing directly or indirectly any and all action prone to expropriate, adjudicate, transfer or dispose of the Gol Shares, except pursuant to a prior and express authorization from the Arbitration Tribunal or from the Court responsible for Respondent 1's judicial reorganization case.

2. To keep in effect the banking guarantee provided by Claimant.

3. To reject the other motions submitted by Claimant."

8. WRITTEN COMMUNICATIONS SUBMITTED IN REGARD TO MERIT

57.
Claimant submitted, on June 8, 2009,26 its written communication of allegations as to merit, having attached thereto Mr. Silvio Simonaggio's expert report ["First Simonaggio Expert Report"].
58.
Respondents 1 and 2 submitted, on August 10, 2009,27 their written communication as to merit, having attached thereto Mr. Milton Rodrigues de Sá's expert report ["First Rodrigues de Sá Expert Report"].
59.
Respondent 4 also submitted its written communication as to merit on August 10, 2009.28

9. WITNESS EVIDENCE

60.
Claimant, in its C 33 brief, indicated as witnesses to be heard at the hearing [the "Evidentiary Hearing"], Messrs.:

- Silvio Simonaggio, accounting expert

- Henrique Constantino

- Márcio Nobre

- Marco Antônio Provetti

- Lup Wai Ohira

- Lap Chan

- Santiago Born

61.
Of the witnesses subpoenaed by Claimant, four were its own witnesses and three were the counterparty's witnesses, for whom Claimant moved that the Arbitration Tribunal order their appearance.
62.
Claimant, in its C 40 brief, moved that the Arbitration Tribunal include in its witness list Messrs.:

- Marcelo Bento Ribeiro

- Sérgio Rego

63.
Said additional list would serve to "contend against such facts as Respondents brought forth in briefs R1244 and R422."
64.
The Arbitration Tribunal accepted to include in its list the witnesses indicated in paragraph 62 above.29
65.
As for Respondents 1 and 2, in their R1244 brief, they subpoenaed as witnesses Messrs.:

- Milton Rodrigues de Sá, accounting expert;

- Nelson Franco de Azevedo Junior;

- Roula Zaarour;

- Ana Luiza Derenusson30

- Humberto Tognelli

- Flávio Tamura

- Edward Leek

- Josh Connor

- Denise Afonso

- Fabio de Assis da Silva

- Lap Wai Chan

66.
Respondent 4, in its R422 brief, informed the Arbitration Tribunal that it intended to hear the witnesses:

- Constantino de Oliveira Júnior; and

- Lap Chan

10. EVIDENTIARY HEARING

67.
The Arbitration Tribunal set up two conference calls with the parties in order to discuss, among other subjects, the development of the Evidentiary Hearing.31
68.
Thereupon, the Arbitration Tribunal issued Procedural Order No. 7, which accepted the agreements reached for the Evidentiary Hearing to be held. The latter was effectively held at Fundação Armando Álvares Penteado [Armando Álvares Penteado Foundation], located at Rua Alagoas 903, Pacaembu District, São Paulo, Brazil, on September 9, 10 and 11, 2009.
69.
At said Evidentiary Hearing, the following expert witnesses were heard:

- Silvio Simonaggio, designated by Claimant; and

- Milton Rodrigues de Sá, designated by Claimants 1 and 2.

70.
As far as witnesses are concerned, the following individuals were heard:

- Henrique Constantino

- Lap Chan

- Lup Wai Ohira

- Márcio Nobre

- Constantino de Oliveira Júnior

- Roula Zaarour

- Flávio Tamura

- Edward Leek

71.
Respondents 1 and 2 indicated during the course of the Evidentiary Hearing that they would waive witnesses Fábio de Assis da Silva, Nelson Franco de Azevedo, Denise Afonso and Josh Connor.32
72.
Claimant, in turn, stated that it would waive the remainder of the witnesses.33

11. HUMBERTO TOGNELLI'S TESTIMONY

73.
Witness Humberto Tognelli, subpoenaed by Respondents 1 and 2, did not appear at the Evidentiary Hearing, advised the Arbitration Tribunal of such fact pursuant to a communication on September 3, 2009, and justified his absence by invoking professional secrecy.
74.
At the Evidentiary Hearing, the Arbitration Tribunal requested that both parties prepare, within ten days, two lists of witness questions.
75.
The parties submitted their lists of questions,34 and on September 29, 2009. the Tribunal sent a consolidated list of questions to witness Humberto Tognelli.
76.
The witness submitted his answers to the Arbitration Tribunal on October 30, 2009.
77.
On November 4, 2009, Respondents 1 and 2 submitted to the Arbitration Tribunal a communication35 titled "Looking into a Possible False Testimony," alleging there was a contradiction between Humberto Tognelli's testimony and Márcio Nobre's testimony (given at the Evidentiary Hearing).
78.
The alleged contradiction had to do with Mr. Márcio Nobre's assertion that he had not attended any type of meeting with KMPG staff during VRG's acquisition phase.
79.
After a procedural measure was granted Claimant, the Arbitration Court notified both witnesses, on November 17, 2009, to provide their clarifications on the alleged contradiction.
80.
Witness Humberto Tognelli36 ratified the terms of his testimony, and witness Márcio Nobre37 provided the necessary clarifications.
81.
Respondents 1 and 2 submitted a communication titled "Breach of Communication A 46 by Claimant's Expert Witness and Irregularities in the Written Statement submitted by Mr. Márcio Nobre."38
82.
After a procedural measure39 granted Claimant40 and Respondent 4,41 the Arbitration Tribunal informed the parties that it was taking note of the parties' allegations, and ruled to deny with grounds Respondents' motion to subpoena two new witnesses; it also denied Respondents' motion for a recross of witness Márcio Nobre.
83.
As regards the motion to disregard Márcio Nobre's testimony, the Arbitration Tribunal ruled42 that "in its final award it shall make a ruling on disregarding (fully or in part) Mr. Márcio Nobre's testimony, and in the event it does not disregard such testimony, it shall evaluate in proper fashion the circumstances alleged by Respondents 1, 2 and 4, and the incidents raised for such purpose."
84.
The Arbitration Tribunal, after pondering on both testimonies, on the clarifications provided by the witnesses, and on both briefs from counsel, rules to give greater credibility to Mr. Humberto Tognelli's written testimony, and therefore to disregard in part witness Márcio Nobre's testimony, with respect to those points in his testimony where a direct contradiction is found; such contradictions are circumscribed solely to facts in connection with KPMG's participation in the process prior to VRG's sale.

12. ADDITIONAL WORK REQUESTED OF THE EXPERT WITNESSES

85.
At the Evidentiary Hearing, the Arbitration Tribunal asked the two expert witnesses to simultaneously provide the following:

"(i) first, a presentation on the arguments in favor and against their position as regards each difference between the two of them, placing more emphasis on differences greater than one million Reais, and looking to place less emphasis as such differences get smaller;

(ii) in liabilities, at least as regards large sums, to say whether they are paid or not, and in the latter case why;

(iii) as regards information on where debts and assets originate in time, the Tribunal believes it appears to be costly and a major effort to accurately describe to the last Real where expenses originate in time; so, if such information can be provided, that will be helpful, but if obtaining such information is complicated, the Tribunal reserves the right, if necessary, to make a ruling or procedural order to obtain such information."

86.
Both expert witnesses submitted their supplemental expert reports on November 17, 2009 ["Second Simonaggio Expert Report" and "Second Rodrigues de Sá Expert Report"].

13. ALLEGED IRREGULARITIES IN THE SECOND SIMONAGGIO EXPERT REPORT

87.
As previously mentioned, Respondents 1 and 2 submitted to the Arbitration Tribunal a communication43 titled "Breach of Communication A 46 by [the Expert Witness of] Claimant and Irregularities in the Written Statement submitted by Mr. Márcio Nobre."
88.
In said communication Respondents 1 and 2 alleged that Claimant's expert witness had expressed in his supplemental opinion (item "Deposit in Guarantee – Visa") the opportunity he had to conduct "interviews of VRG employees." Thus, he presumably had access to information that was not made available to the Expert Witness of Respondents 1 and 2.
89.
Based on such grounds, they moved "to disregard the [Second Simonaggio Expert Report] submitted by Mr. Silvio Simonaggio with respect to the aforementioned chapter [Deposit in Guarantee – Visa], subject to the due process of law being violated."
90.
Respondent 4 agreed with the allegations of Respondents 1 and 2,44 and moved to disregard the conclusions of Claimant's Expert Witness, particularly as regards the item "Deposit in Guarantee – Visa."
91.
Claimant alleged45 that the information provided by VRG's management had already been provided during the first expert examination, and been amply debated at the evidentiary hearing.
92.
Furthermore, Claimant said that the Expert Witness of Respondents 1 and 2 made no objection to the sufficiency of information during the 57 days lapsed between the Tribunal's Order on September 21, 2009 and the delivery of his opinion on November 17th of the same year.
93.
The Arbitration Tribunal took note of the parties' allegations, and informed the parties that it would take them into account in this award.46

14. CLOSING OF THE EVIDENTIARY PHASE

94.
On December 3, 2009, the Arbitration Tribunal proceeded, under the terms and for the purposes of article 22(1) of the ICC Rules, to close the evidentiary phase within the scope of this arbitral proceeding,47 safeguarding the submission of final written allegations.

15. FINAL WRITTEN ALLEGATIONS

95.
On January 7, 2010, both parties submitted their final written allegations,48 respecting the time period set by the Arbitration Tribunal in communication A 52.

16. BRIEFS ON THE ARBITRATION CHARGES INCURRED

96.
In view of communication A 52 from the Arbitration Tribunal, the parties submitted a list itemizing the costs and expenses incurred during this arbitral proceeding [hereinafter "Arbitration Charges"].49

17. PRINCIPLES OF THE ADVERSARY SYSTEM AND EQUITY

97.
At the end of both hearings (on jurisdiction and on evidence), the Arbitration Tribunal asked the parties whether at any time during the arbitral proceeding the principles of the adversary system and the parties' equity were violated. Both parties answered no, and confirmed the Arbitration Tribunal's respect for such principles as have served as a beacon for the proceeding.50

18. TERM FOR ISSUANCE OF THE AWARD

98.
The parties expressly agreed that the award would be issued within the term, in the manner and with the contents provided under articles 24 and 27 of the ICC Rules, and therefore waived the term provided for in section 14.8 of the Agreement.51 Thus, pursuant to article 24 of the ICC Rules, the Arbitration Tribunal has an initial term of six months to issue a final award after the Secretariat notifies the Arbitration Tribunal that the Court has approved the Terms of Reference. Notification was given on September 15, 2008, and therefore the initial term for issuing a final award would expire on March 15, 2009.
99.
Article 24(2) of the ICC Rules allows the ICC Court to extend the term for the Arbitration Tribunal to issue a final award, and it did so on March 12, 2009, June 18, 2009, November 12, 2009, January 14, 2010, March 11, 2010, May 20, 2010, and July 8, 2010, granting the Arbitration Tribunal additional time until July 30, 2009, July 31, 2009, December 31, 2009, March 31, 2010, May 31, 2010, July 31, 2010, and September 30, 2010, respectively, for a final award to be issued.
100.
Wherefore, this final report is issued within said term.

III. FACTS

101.
Varig (Viação Aérea Rio Grandense S/A) [hereinafter "Old Varig"] incorporated on May 7, 1927, is Brazil's oldest airline and one of the oldest in the world,52 providing regular air transportation services for both passengers and cargo in the domestic and international markets. On June 17, 2005, Old Varig, finding itself in a financial bind (with a negative net worth of R$ 6,838 billion),53 applied in Rio de Janeiro for protection under Law 11,101, of February 9, 2005, which regulates the judicial and extrajudicial reorganization and bankruptcy of businesspersons and business companies [the "LRJ" Act].
102.
MatlinPatterson, in turn, is an American investment fund specializing in "distress investing,"54 which is engaged in complex reorganization and company control transactions,55 and which created a very complex corporate structure to make three large financial transactions in Brazil in connection with Old Varig:
103.
In late 2005, it acquired the control – albeit indirect – of VLog, an Old Varig subsidiary engaged in the business of air cargo transportation (1);
104.
In March 2007, through a controlled company named VRG, it acquired the Varig Business Unit ["UPV"] (2) (which resulted from Old Varig's judicial reorganization proceeding), engaged in the business of air passenger transportation, in order thereby to gain control both of the air passenger and air cargo transportation businesses.
105.
However, and only three months after VRG's purchase of the passenger business,56 MatlinPatterson decided to sell the VRG company, which owned the passenger business, to the Gol Group; it should be mentioned that such Agreement is the subject-matter of this arbitration (3).
106.
Later, i.e., in March 2009, because of numerous problems felt in the air transportation market, and as a consequence of having posted almost R$ 400 million in operating liabilities for the year, VLog submitted an application for judicial reorganization under the LRJ Act.
107.
Virtually soon afterwards, only four months after the application for judicial reorganization was filed, the MatlinPatterson Fund sold all of VLog's shares to Ms. Lap Wai Ohira (sister of Mr. Lap Chan, an executive officer of the MatlinPatterson Fund) (4).
108.
A corporate change likewise occurred in the Purchaser's group (5).

1. VLOG'S INDIRECT PURCHASE BY THE MATLINPATTERSON FUND

109.
As early as during Old Varig's judicial reorganization, in 2005, the decision was made to sell VLog, a company engaged in air cargo transportation, and VEM, a company engaged in maintenance, both Old Varig subsidiaries, to a consortium named Aero-LB (with the participation of the Portuguese airline TAP – Transportadora Aérea Portuguesa), for the amount of US$ 62 million.
110.
Such sale was subject to the condition precedent of Old Varig not receiving, by the end of 2005, a more advantageous offer for the sale of its two subsidiaries, in which case the Aero-LB consortium would receive a premium equivalent to 20% of the capital initially invested in them.
111.
However, the MatlinPatterson Fund offered US$ 48.2 million57 for the purchase of VLog, an offer that was more advantageous than Aero-LB's, and was therefore accepted. Thus, the MatlinPatterson Fund acquired, indirectly and in a manner better explained below, the control of VLog, an air cargo transportation business, and the Aero-LB consortium was left with only the control of VEM, a maintenance business.58

A. Structure of the Transaction

112.
As is the case with many other legal systems,59 in Brazil there is a CBA [Brazilian Aviation Code] in effect, which caps foreign capital in Brazilian airlines at 20% of the voting capital:

"Article 181 – A concession [franchise] shall only be given to a Brazilian legal entity having:

I – its head office in Brazil;

II – at least four fifths (4/5) of its voting capital belonging to Brazilians, such limitation to prevail in any corporate capital increases;

III – its management entrusted solely to Brazilians."

113.
The MatlinPatterson Fund created the following corporate structure for the purchase of VLog and later of UPV, which formally avoided the application of said Article:
114.
As a first step, the MatlinPatterson Fund organized a company headquartered in the USA, Volo Logistics (Respondent 3, already dismissed from this arbitration by the Partial Award). That company created, in turn, jointly with Messrs. Marco Antônio Audi, Marcos Michel Haftel and Luís Eduardo Gallo (already collectively described as Brazilian Partners), the Volo DB company,60 currently Respondent 2.

B. Control of the Volo DB Company

115.
Each one of the Brazilian Partners invested in the Volo DB company only the amount of R$ 2,199,362, while Volo Logistics invested R$ 26,392,354 (about 11 times more than the Brazilian Partners). Thus, each one of the Brazilian Partners was the holder of 2,199,362 voting shares (a total of 80% of voting shares), while Volo Logistics was the holder of 1,649,522 voting shares (corresponding only to 20% of the total) and 8,247,610 preferred shares (corresponding to 100% of preferred stock).61
116.
It should be underscored that the Brazilian Partners pledged the shares to JP Morgan Chase Bank N.A. on account of a loan taken by each one of the Brazilian Partners, in the amount of US$ 1,003.58, on January 26, 2006,62 and which served to finance the disbursement for their holdings in Volo DB's capital stock. That loan was guaranteed for JP Morgan by Volo Logistics.63
117.
Some instruments were also signed which imposed, albeit through Volo Logistics, control by the MatlinPatterson Fund in Volo DB:

- A call option agreement64 signed between Volo Logistics and the Brazilian Partners65 whereby Volo Logistics had, in case certain circumstances occurred,66 a call option to purchase all shares belonging to the Brazilian Partners. In turn, the Brazilian Partners had, once certain circumstances occurred,67 an irrevocable put option to sell all shares held by them in Volo DB to Volo Logistics or to whomever the latter might designate.

- A shareholders' agreement signed between the Brazilian Partners and Volo Logistics, as partners in Volo DB, whereby, among other things, the possibility was established for changing the equity interest held by Volo Logistics in Volo DB, should airline industry rules so allow.68

VLog's Purchase

118.
In late 2005, Volo DB purchased all VLog shares from Old Varig for US$ 48.2 million.

Loan Agreements

119.
Two years later, in 2006 and 2007, and so as to finance the UPV purchase transaction, Volo Logistics entered into a series of loan agreements in favor of VRG and VLog amounting to at least US$ 201 million.69 In 2007, as a result of VRG's sale to the Gol Group, VLog assumed VRG's debt resulting from said loan agreements, and undertook to settle such debt.70
120.
As a result of the non-payment of such loans, a series of lawsuits were initiated between Volo Logistics and Respondents 1 and 2, VLog and Volo DB, in both New York71 and São Paulo72 courts. On August 8, 2007, Volo Logistics filed a collection suit in São Paulo Civil Division Courts against VLog for an amount of over US$ 92 million, and moved to attach more than six million Gol shares owned by VLog.73 As a result, in the first place, a motion was entered and granted to seize valuable assets existing in VLog’s equity, which included the Gol shares.74
121.
Later, on December 31, 2008, Volo DB, with Volo Logistics’ consent, received and assumed from VLog all debts resulting from the loan agreements.75

2. UPV'S INDIRECT ACQUISITION BY THE MATLINPATTERSON FUND

122.
The Brazilian legal system allows a company under judicial reorganization to harbor within it a separate business unit that inherits a part of the old company’s business. Thus, it was determined that the judicial reorganization would be carried through by creating a vehicle into which only a part of Old Varig’s business would be transferred,76 which pertained to Old Varig’s regular domestic and international passenger transportation.
123.
For this reason, UPV was created within Old Varig,77 integrating into it the air passenger transportation business.
124.
At this point, the MatlinPatterson Fund decided to take part in UPV’s purchase using the corporate structure created for VLog’s acquisition all but incorporating a new company named VRG, which would be the one to take part in the auction at which UPV would be sold off.
125.
At the judicial auction that took place on July 20, 2005, UPV was effectively sold off to VRG78 for the price of US$ 24,000,000.79 And so it was that, albeit indirectly, UPV was eventually sold off to the MatlinPatterson Fund.
126.
And thus, both air passenger transportation and air cargo transportation were joined together into the same group.
127.
It should be mentioned that in the legal notice of judicial sale80 [the "Legal Notice"] two conditions were established for the deal to materialize:

• That the successful bidder make:

"an investment in the VARIG Business Unit of an amount corresponding to seventy-five million U.S. dollars (US$ 75,000,000) within forty-eight (48) hours from the Auction Result Report. If by the end of the time period in question ANAC has not yet issued the proper authorizations allowing the bidder to take over the VARIG Business Unit, said amount shall be deposited, within the above time period, in an account available to the Court of the 8th Commercial Division of Rio de Janeiro, to be used toward the continuity of the VARIG Business Unit's operations while such authorizations have not been issued."

128.
At this moment VRG has underway, against Old Varig, an action for settlement of accounts pertaining to the time period from the auction date to the UPV-awarding date in connection with certain particular items.81 Such settlement of accounts will be better explained in paragraph 354 below.

• That the National Civil Aviation Agency ["ANAC"] grant its Certificate of Airline Company Authorization ["CHETA"].82

129.
On December 15, 2006, almost six months after the auction, VRG received ANAC’s CHETA and Air Transportation Concession [Franchise] Agreement, which on the one hand marked the end of the so-called UPV period (from the judicial auction date to the CHETA granting date), and consequently the takeover of Old Varig’s passenger transportation business by the MatlinPatterson Fund.

3. VRG'S SALE TO THE GOL GROUP

130.
Gol is an airline created by the Áurea Group (a Brazilian group engaged in roadway transportation), which started its operations in 2001, and had as its main goal to be a passenger transportation company.
131.
Immediately after VRG obtained the CHETA, in December of 2006, negotiations were started with the MatlinPatterson Fund, in the person of Mr. Lap Chan,83 and the Gol Group, in the person of Mr. Constantino de Oliveira Júnior, for the acquisition by such group of all VRG shares.
132.
Those negotiations led to the signing, on March 28, 2007, by Respondents 1 and 2 and GTI (initial Claimant and a member company of the Gol Group), of the Agreement whereby VLog and Volo DB sold to GTI all VRG shares for the total price of US$ 275 million. Part of the stipulated price was paid in Brazilian currency and the balance in preferred shares issued by Gol, GTI’s controlling party.84
133.
The price of US$ 275 set by the parties included all the air passenger transportation business inherited by UPV, including VRG’s operating capacity at São Paulo’s Congonhas Airport, namely the number of "slots" (takeoff and landing times) held by the latter company. So much so that the parties signed an addendum to the Agreement whereby a loss of each one of the 124 "slots" operated by VRG at Congonhas would imply a deduction of US$ 2,241,935 from the agreed price.85

ANAC’s Approval of VRG’s Sale to the Gol Group

134.
The transfer of shares under the Agreement was subject to the condition precedent that ANAC’s prior approval be granted.86 By contract, only on the day ANAC granted its prior authorization, pursuant to CBA articles 184 and 185, would GTI be responsible for the company’s management.

Price Adjustment Mechanism Established by the Agreement

135.
In Section 5 of the Agreement the parties agreed to a complex price adjustment mechanism.87
136.
Attached to the Agreement itself was Appendix III with a balance sheet that according to said Agreement had been "reviewed" by PricewaterhouseCoopers ["PwC"], which ascertained a working capital, as of March 15, 2007, of R$ 40,750,774 [the "Initial Balance Sheet"]. The Agreement provided for the working capital to be recalculated on the day prior to the date ANAC granted its prior approval for the transaction. Such date turned out to be April 8, 2007, only three weeks after the Agreement was signed [hereinafter the "Consummation Date"], and on such date a new balance sheet should be drawn up [the "Reviewed Balance Sheet"] to recalculate the working capital as of the Consummation Date.88
137.
In accordance with what the Agreement provided for, on November 12, 2007 PwC submitted a Reviewed Balance as of the Consummation Date,89 and which ascertained a total working [capital] for VRG of R$ 35,380,544. Such balance sheet was not audited, as will be better analyzed in paragraphs 189 et seq. below. Claimant, not having agreed to the Reviewed Balance Sheet submitted by PwC, retained the services of Ernst & Young ["E&Y"] to have the PwC Reviewed Balance Sheet analyzed.
138.
And so, on December 4, 2007, E&Y submitted a report called independent auditors’ assurance report, in which it showed its disagreement regarding the balance sheets previously submitted by PwC. In the opinion of E&Y, VRG’s working capital, as of April 8, 2007, was negative by R$ (123,149,597).90
139.
The two audit firms were unable to come to an agreement on a third audit firm to be appointed under Section 5.1.3.1 of the Agreement, which is why this dispute has arisen.

4. CHANGES THE SELLERS' CORPORATE GROUP UNDERWENT AFTER VRG'S SALE

140.
The Sellers’ corporate group, controlled by the MatlinPatterson Fund, and better described in paragraph 113 above, underwent various corporate changes after the VRG company was sold, which must now be addressed.

Volo DB

141.
As regards Volo DB, before VRG’s sale it was held 80% by the Brazilian Partners and 20% by Volo Logistics. As a result of the Brazilian Partners’ ouster, Respondent 3, which in turn is fully controlled by the MatlinPatterson Fund, took over the company’s management.
142.
Such ouster resulted from a long-drawn and complicated dispute between the Brazilian Partners and the MatlinPatterson Fund, which in February 2008 led to the Court of the 17th Civil Division of the São Paulo Judicial District ordering the company partially dissolved and the Brazilian Partners ousted due to charges of "reckless management" leveled against them.91

VLog’s Judicial Reorganization

143.
In March 2009 VLog, still owned by Respondent 2, by reason of the harsh economic problems felt by the company, filed an application for protection under the LRJ Act, in which it acknowledged having R$ 370 million in operating liabilities.

VLog’s Sale to Mr. Lap Chan’s Sister

144.
Just four months after the application for judicial reorganization was filed, in July 2009 Ms. Lup Wai Ohira, sister of Mr. Lap Chan, executive officer of the MatlinPatterson Fund, purchased from Volo DB (a company fully controlled by the MatlinPatterson Fund) all VLog shares for the token amount of US$ 100.92 One should recall that historically VLog was Old Varig’s subsidiary engaged in air cargo transportation, and that on the date of its sale to Ms. Lup Wai Ohira it was still engaged in such business.
145.
Such sale was conditional upon ANAC’s approval, and to this date the Arbitration Tribunal does not know whether such approval has been granted or not.
146.
It was upon VLog’s sale that the MatlinPatterson Fund lost control both of air passenger transportation, because it had already sold VRG to the Gol Group in December 2006, and of air cargo transportation, because of VLog’s sale to Ms. Lup Wai Ohira, sister of the MatlinPatterson Fund’s executive officer.
147.
The current corporate structure is the following:

5. CHANGE IN THE GOL GROUP

148.
It should also be mentioned that during this arbitration VRG was merged into GTI, a Gol Group company that acquired VRG’s control, and initial Claimant in this arbitration. This gave rise to the curious event that Claimant and the company subject to sale and purchase coincide.

IV. THE PARTIES’ MOTIONS

1. CLAIMANT

149.
In the AdM,93 Claimant moved on merit as follows:

" [That] the Arbitration Tribunal make the price adjustment as provided for in Section 5.1 of the Agreement, and order Respondents pay such amount as shall be ascertained by the Arbitration Tribunal (...);

"As a subsidiary motion, should the Arbitration Tribunal rule that the price adjustment must be ascertained outside the scope of this arbitration, which it is not expected to do, petitioner moves the Arbitration Tribunal hold Respondents 3 and 4 liable to GTI for the credit resulting from the price adjustment, and appoint a third independent audit firm for the latter to make the price adjustment as provided for in Section 5.1 of the Agreement, resolving the divergences between the PwC balance sheet (a GTI credit of R$ 5,370,229.56) and the E&Y balance sheet (a GTI credit of R$ 163,900,270.04), and ascertaining the adjustment amount;

Order Respondents pay all charges of this arbitration, including administrative expenses and expert-witness fees, as well as the arbitrators’ fees, and such legal fees as are awarded the prevailing party in accordance with article 31 of the ICC Rules."

150.
In its closing arguments,94 Claimant reiterated the motion to order Respondents pay such amount as shall be determined by the Arbitration Tribunal, which according to expert examination corresponds to R$ 114,450,597, plus statutory interest due, as provided under art. 406 of the Brazilian Civil Code [the "CC"] and pursuant to the Agreement, in addition to all costs incurred by Claimant in this arbitration.
151.
They [sic] likewise move to hold Respondents 2 and 4 collectively and jointly liable with Respondent 1 for the price adjustment.95

2. RESPONDENTS 1 AND 2

152.
In the AdM, Respondents 1 and 2 assert that Claimant failed to submit the Reviewed Balance Sheet in the manner and according to such criteria as agreed upon (Section 5.1.3.1 of the Agreement), which is to say, "observing only and solely the same items, the same methodology"; it only went as far as to submit an "Independent Auditors’ Assurance Report" furnished by E&Y, which does not contemplate any analysis or validation of the PwC Reviewed Balance Sheet, which is not backed by the Agreement, and which does not observe the criteria elected by the parties; for this reason [the Reviewed Balance Sheet] drawn up PwC, which is unopposed by Respondents 1 and 2, shall prevail for price adjustment purposes."
153.
In their closing arguments,96 Respondents 1 and 2 reiterate that the price adjustment was already made even before the commencement of this arbitral proceeding, and that they hold a credit of R$ 35,380,544 against Claimant, so that the Arbitration Tribunal must:

- acknowledge Claimant’s having no right of action or, further,

- acknowledge such credit in favor of Respondents 1 and 2.

154.
As a subsidiary motion, Respondents 1 and 2 claim that if the Arbitration Tribunal finds that the price adjustment should not be defined by the PwC Reviewed Balance Sheet, then it should take into consideration the technical analysis performed during the course of this arbitration, with Respondents 1 and 2 being creditors to the amount of R$ 36,298,593.97
155.
Also as a subsidiary motion, and if the Tribunal admits the case for balance sheet changes, and accepts albeit in part such "superseding facts" as alleged by Claimant, Respondents 1 and 2 point out that this will imply amendment to contractual provisions, wherefore a superseding fact attributable to the financial position as of April 8, 2007 must necessarily take into consideration the accrual basis [competencia temporal] of the financial position as of March 15, 2007, subject to creating an economic and financial imbalance upon comparing amounts and values of a different nature. In this case, the working capital amount to be restituted in favor of Respondents 1 and 2 is R$ 19,975,048.85.98
156.
Respondents 1 and 2 move further99 to order Claimant pay Arbitration Charges and the penalties arising from bad-faith litigation, taking into account Claimant’s payment of such legal fees as awarded the prevailing party, and taking into account Claimant’s distortion of facts and its attempt to obstruct an investigation into material truth.

3. RESPONDENT 4

157.
In the Terms of Reference, Respondent 4 claimed, summing up, to believe100"it was joined in this arbitral proceeding despite the fact that [it was] not [a signatory] to the arbitration agreement on which it is based," and said "it does not recognize the Arbitration Tribunal's jurisdiction and reserves the right to oppose any rulings issued by it, and the signing of the Terms of Reference101or any action performed in connection with the arbitral proceeding in question does not imply a waiver of such right."
158.
And it adds102 that "the prima facie lack of standing of Respondents [...] 4 to appear in the arbitral proceeding in reference [must] be acknowledged," reiterating further "that [it is] not [a] party to the agreement containing the arbitration clause, and therefore the arbitration tribunal has no jurisdiction over Respondents 3 and 4, and Respondents 3 and 4 do not agree to having the issue of arbitral jurisdiction be decided by the arbitrators."
159.
Finally, Respondent 4 argued103 that is should "be immediately dismissed from this arbitration proceeding," and further, reasserted that despite its briefing, it "in no way waives [...], and hereby expressly reserve [s] the right to apply to the courts for their examination of the issue of the Arbitration Tribunal’s jurisdiction in any future legal proceeding […]."
160.
In closing arguments,104 Respondent 4 says it expects this Tribunal to hold it not liable for the price adjustment, and to dismiss Claimant’s claim. It states further that it expects the Tribunal to acknowledge that Claimant has no right to any adjustment favorable to the latter under the Agreement.105
161.
As a result of Claimant’s claim being dismissed, Respondent 4 moves to order Claimant pay all expenses borne by Respondent 4, plus the arbitrators’ fees, legal fees, and a fine for bad-faith litigation.
162.
Respondent 4 focuses its defense on issues relating to the Arbitration Tribunal’s jurisdiction, and submits a defense on merit which coincides with that of Respondents 1 and 2. Wherefore, upon referring to the defense of Respondents 1 and 2, the Tribunal shall regard such defense as extending to Respondent 4, except whenever it refers expressly to Respondent 4’s position.

V. LEGAL GROUNDS

163.
After a brief analysis of the facts, the Arbitration Tribunal must perform a legal analysis, which shall be structured according to the questions106 contained in Procedural Order No. 2 and in Procedural Order No. 5.
164.
Accordingly, the Tribunal shall answer the following questions:

Question No. 1 :

Whether the price adjustment provided for in Section 5.1 of the Agreement has already been determined or, otherwise, is yet to be determined;

Question No. 2 :

If the answer to question # 1 is that the price adjustment has already been determined, the question is asked by whom, and what is the adjustment amount resulting therefrom?

Question No. 3 :

If the answer to question # 1 is that the price adjustment is yet to be determined, the question asked is who shall make such adjustment: a third party designated by the Arbitration Tribunal or the Arbitration Tribunal itself?

Question No. 4 :

If the answer to question # 3 is that the Arbitration Tribunal shall be the one to determine the price adjustment, what is the price adjustment amount?

Question No. 5 :

In case the Arbitration Tribunal determines the price adjustment, how shall the accrual of interest on the price adjustment amount be determined?

Question No. 6 :

To what extent are Respondents 2 and 4 liable for Respondent 1’s obligations?

Question No. 7 :

How shall the Arbitration Tribunal set the Arbitration Charges?

165.
The Arbitration Tribunal shall answer the questions in the aforementioned order.

V.1 WHETHER THE PRICE ADJUSTMENT PROVIDED FOR IN SECTION 5.1 OF THE AGREEMENT HAS ALREADY BEEN DETERMINED OR, OTHERWISE, IS YET TO BE DETERMINED.

166.
The Tribunal shall begin by summarizing the parties’ position, and then it shall rule.

1. CLAIMANT’S POSITION

167.
Claimant alleges107 that the price adjustment is yet to be determined. According to it, the procedure was started but was not completed because Claimant did not agree to the Reviewed Balance Sheet drawn up by PwC, and submitted a critical analysis prepared by E&Y.
168.
However, according to Claimant, PwC refused to appoint a third audit firm which, pursuant to Section 5.1.3.1, should resolve any divergences between the two reports (PwC Reviewed Balance Sheet and E&Y’s critical analysis), giving rise to this arbitral proceeding.

2. POSITION OF RESPONDENTS 1 AND 2

169.
Respondents 1 and 2 have a position which is opposite the one defended by Claimant; according to them, the price adjustment has already been determined.108 To Respondents 1 and 2, the price adjustment was completed pursuant to the work done through the Reviewed Balance Sheet drawn up by PwC under Section 5.1.1 of the Agreement, which was not validly challenged by Claimant, since the technical report submitted by E&Y does not meet the requirements under Section 5.1.3.1 of the Agreement.
170.
According to Respondents 1 and 2, they are Claimant’s creditors for the amount of R$ 35,380,544, as attested by the PwC Reviewed Balance Sheet.

3. RULING BY THE ARBITRATION TRIBUNAL

171.
To answer this question, the Arbitration Tribunal shall analyze the clause of the Agreement pertaining to the price adjustment mechanism, followed by a concrete analysis of each report submitted by the audit firms involved in the case, in order to be able to conclude whether the price adjustment has been determined or not.
172.
Section 5 of the Agreement is named "Event of Acquisition Price Adjustment." Its meaning, therefore, leaves no room for doubt: in Section 4 the parties had agreed on the acquisition price, and in the next clause they desired to set the requirements and conditions whereby such price might be modified subsequently to the execution of the Agreement. Its verbatim text is as follows:

Section 5.1. "Attached to this Agreement (Appendix III) is a balance sheet reviewed by [PwC] reflecting the items agreed upon by the Parties on this date for this transaction, which shall be considered solely for price adjustment purposes, indicating the following:

(...).

Section 5.1.1. "No later than one hundred eighty (180) days from the base-date of the balance sheet provided for in Section 5.1 above, [PwC] shall submit a new balance sheet, duly audited, observing only the same items, the same methodology as referred to in Section 5.1, taking as its base-date the day prior to the event under Section 9.2

(...)

Section 5.1.3.1. GTI may nominate, in five (5) business days from submission of the balance sheet provided for in section 5.1, a top audit firm to validate said balance sheet so as to gauge the ascertained amounts. Such validation shall be done no later than forty-five (45) days from delivery of the balance sheet with proper attachments by [PwC] to GTI, indicating forthwith whether or not there are any divergences with the balance sheet submitted by [PwC]. If there is any divergence as to said amounts, the two audit firms shall choose by mutual agreement a third top audit firm, supported in equal parts by GTI and [VLog], to resolve said divergences. Such third audit firm shall have a period of at most twenty (20) days from its retainer to submit a conclusive report, which the parties hereby accept as final.

Section 5.2. Within five (5) business days from the completion of the audit provided for in Section 5.1.1 above:

(a) once it is verified that the difference in the balances of the specific balance sheet provided for in Section 5.1 and the specific balance sheet provided for in Section 5.1.1 above have a positive balance, such balance shall be fully paid by GTI to [VLog] within three (3) business days;

(b) once it is verified that the difference of the balances in the specific balance sheet provided for in Section 5.1 and the specific balance sheet of Section 5.1.1 above have a negative balance, such balance shall be fully paid by [VLog] to GTI, in national currency, into an account to be indicated by GTI, within three (3) business days.

173.
The Tribunal shall break up its analysis as follows:

- first, it shall describe the substantive content of Section 5 of the Agreement (A);

- second, it shall analyze the drawing up of the Initial Balance Sheet attached to the Agreement (B);

- third, it shall describe the work done by PwC (C), and then the work done by E&Y (D);

- lastly, the Tribunal shall present its conclusions (E).

A. Substantive Content

174.
How is it that one determines the price adjustment amount?
175.
The starting point is the Initial Balance Sheet attached to the Agreement itself, from which it can be deduced that the working capital as of March 15, 2007, i.e., 13 days before signature, amounted to R$ 40,750,874. Section 5 provides that that same working capital would be determined again on the Consummation Date, April 8, 2007, as it was on such date that ANAC approved VRG’s takeover by the Gol Group. The parties are in agreement that there is an addition error in the liabilities of the Initial Balance Sheet, which makes the working capital figure as of March to vary from R$ 40,750,774 to R$ 40,750,874.109
176.
In other words: according to the content of Section 5.2 of the Agreement, the price adjustment could result in a payment benefiting Respondent 1 or in a payment benefiting Claimant, depending on whether the working capital as of the Consummation Date were higher or lower than the sum of R$ 40,750,874.
177.
The price adjustment would, thus, be equal to the difference between the working capital warranted in the Initial Balance Sheet attached to the Agreement and the working capital that actually existed as of the Consummation Date, such as it might show up on the Reviewed Balance Sheet on that date. If VRG’s actual working capital as of the Consummation Date turned out to be higher than R$ 40,750,874, the Purchaser should increase the price by the amount equal to the difference, and if it turned out to be lower, the Seller should return it.
178.
It should be underscored that the working capital amounts to be compared were to be calculated on different dates: one on March 15th and the other on April 8th. For that, it was almost certain that an adjustment would be produced: as VRG is an ongoing company, its working capital calculated on different dates, it seemed predictable that different results would be reached [sic].

Counter-argument of Respondents 1 and 2

179.
Respondents do not agree with that construction of the Agreement, and have defended to the end that "the parties agreed that [the working capital] would not be taken into consideration in the price setting. It would be, in reality, restituted to Respondents 1 and 2 through a price adjustment procedure conducted by one or more audit firms."110
180.
The argument cannot be accepted.
181.
The allegation of Respondents 1 and 2 is totally inconsistent with the literal language of Section 5. From its very language it can be deduced that the Seller, upon attaching the Initial Balance Sheet as Appendix III to the Agreement, represented that the working capital as of March 15, 2007 amounted to R$40,750,874, and in Section 5.2 it accepted that if the working capital as of the Consummation Date turned out to be lower than said amount, it would be obligated to return the difference in a price reduction concept (of if it were higher, it could demand such difference as additional payment).
182.
The statement by Mr. Lap Chan, Respondent 4’s chief executive, explaining the economic aspects of the transactions, confirms the Tribunal’s conclusion.111

B. Drawing up of the Initial Balance Sheet

183.
The price adjustment mechanism stipulated by the parties included four consecutive stages:

- The first one consisted of determining the initial working capital, which was done with the Initial Balance Sheet being attached;

- In up to 180 days from March 15, 2007, PwC was supposed to submit the Reviewed Balance Sheet, calculated as of the Consummation Date and duly audited, observing the same items and the same methodology used in the Initial Balance Sheet;

- If Claimant disagreed with the Reviewed Balance Sheet drawn up and audited by PwC, it must then appoint, in five business days, a top audit firm to validate PwC’s report; such validation must be submitted no later than 45 days from delivery of the Reviewed Balance Sheet by PwC;

- In the event of a disagreement as to the working capital amounts calculated by PwC and by the audit firm appointed by Claimant, then the two audit firms must, by mutual agreement, appoint a third audit firm to resolve said disagreements, which was supposed to submit a conclusive report no later than within 20 days.

184.
The starting point for the entire price adjustment process is the Initial Balance Sheet, which was attached to the Agreement as Appendix III, and which - as indicated in Section 5.1 - was "reviewed by [PwC]." Despite such assertion, the reality was quite different. Mr. Humberto Tognelli, executive officer at PwC, and the individual responsible for the report inside PwC, stated that "PwC was not retained to perform a review or any other auditing work or accounting analysis of the [Initial Balance Sheet] and therefore no reviewing procedure, accounting audit was done. Therefore he clarifies that he has not confirmed and has no way of confirming whether the information contained in said [Initial Balance Sheet] is accurate."112 Which is to say, PwC denies having done any work regarding the Initial Balance Sheet. The assertion contained in Section 5.1, that the Initial Balance Sheet (Appendix III to the Agreement) was reviewed by the audit firm, is most clearly false.
185.
On the other hand, and as shall be better explained, it has been proven that the Initial Balance Sheet was drawn up by the Seller, particularly in the person of Mr. Lap Chan.
186.
Was the Purchaser aware of such falsehood?
187.
The evidence produced shows that the Gol Group and its advisors were not aware of such deception, and believed in good faith that a review by PwC had been done, and that the mention included in the Agreement was accurate and corresponded to reality. Mr. Flavio Tamura, executive officer at KPMG, which was the firm advising the Purchaser, stated - unaware of the statements by Mr. Tognelli from PwC - that in his opinion the Initial Balance Sheet had not only been reviewed but also drawn up by PwC itself.113
188.
The Arbitration Tribunal cannot but underscore the malicious nature of the Seller’s conduct (the issue shall be analyzed in greater detail in paragraphs 609 et seq. below): it created in the counterparty and also in the Purchaser’s accounting advisors the illusion that the Initial Balance Sheet had been reviewed by PwC, and therefore enjoyed a presumption of authenticity. Mr. Lap Chan, the Seller’s chief executive, again insisted during the hearing that the Initial Balance Sheet "was submitted to them... by Price staff, who were advising us."114 In view of the strong statement by PwC, the Tribunal has concluded that Mr. Lap Chan’s assertion is not attuned to reality. When VLog signed the Agreement, and represented that the Initial Balance Sheet had been reviewed by PwC, VLog was perfectly aware that it had not ordered such work from PwC, and that consequently it was impossible for said audit firm to have performed the corresponding work.

C. The drawing up of the "Reviewed Balance Sheet"

189.
The Initial Balance Sheet should be reviewed within 180 days, followed by a second balance sheet [the Reviewed Balance Sheet] "observing only and solely the same items, the same methodology" used for drawing up the Initial Balance Sheet. That new balance sheet should take as a base-date April 8, 2007, the Consummation Date on which the transaction was authorized by ANAC. Section 5.1.1 provides explicitly for the requirement that the balance sheet should be audited (not only reviewed but also audited) by PwC.
190.
The Reviewed Balance Sheet drawn up by PwC is dated November 12, 2007, and as such the 180-day term was not met. The parties did not ask the Arbitration Tribunal to be heard on the imputation of such delay, and therefore the Tribunal shall not rule on it. In any event, the Arbitration Tribunal has determined that the delay has no impact on the issues being debated in this arbitration, and which are a part of the ruling for this award.
191.
In that Balance Sheet, PwC ascertained that VRG’s working capital, as of April 8, 2007, was R$ 35,380,544 (for memory’s sake: according to the Initial Balance Sheet, the working capital amounted to R$ 40,750,874).
192.
In analyzing the report submitted by PwC, which includes the Reviewed Balance Sheet, the Tribunal has determined the following:

- The cover sheet for the report contains the expression "Draft for Discussion subject to Change," conveying the idea that it was not a final report;

- Page 6 contains the following expression: "The scope limitations herein described substantially impact the result of our report;"

- Page 12 contains the following sentence: "With a view to the description in the above paragraph, the Balance Sheet as of April 8, 2007 presented next may require significant adjustments and/or contain material errors;"

- Page 13 contains the statement that "with a view to the description in page 12, this balance sheet may require significant adjustments and/or contain material errors."

- Page 28 contains the following title: "Adjustments proposed by VRG’s Management -unaudited."

193.
Let us recall that such Section required PwC to "submit a new balance sheet, duly audited." There seems to be no doubt that, otherwise than as the Agreement expressly provided, PwC did not submit a "duly audited" balance sheet and, in addition to that fact, PwC itself assumed that material errors possibly existed in its report and/or that necessarily the latter would require significant adjustments.
194.
When the parties covenanted in the Agreement that the Reviewed Balance Sheet should have been audited by PwC, what they wanted was for the audit firm to be responsible for it. The parties wanted to make sure that the calculation of the working capital was right and accurately represented VRG’s equity position.
195.
The Tribunal has already pointed out that PwC denies having reviewed the Initial Balance Sheet. And as regards the Reviewed Balance Sheet, even if PwC had even delivered a document, there is no doubt whatsoever that the firm radically refused to be held responsible: the document is self-styled as simply a "draft for discussion subject to change," says it is subject to "scope limitations," and expressly indicates that the Reviewed Balance Sheet attached thereto "may require significant adjustments and/or contain material errors."
196.
The work done by PwC is therefore light-years away from the requirements of the Agreement: the latter called for an audit, i.e., an auditor’s opinion assuming responsibility for the truthfulness of the Reviewed Balance Sheet. and what PwC issued was simply a draft, to which it attached a balance sheet that might require "significant adjustments and/or contain material errors." PwC assumes no responsibility for the Reviewed Balance Sheet submitted by it: instead, it admits that the latter may present significant errors. As a consequence, PwC’s report did not fulfill the objective the parties had agreed to in Section 5.1.1 of the Agreement. The parties wished to have a renowned firm like PwC certifying the calculation of the working capital as of the Consummation Date, and being responsible for its calculation. And such wish would not come true, as PwC expressly refused to audit the Reviewed Balance Sheet and to be responsible for it - a very serious sign that PwC, a company retained by the Seller, had major doubts about the truthfulness of the Reviewed Balance Sheet.
197.
The Tribunal concludes that PwC’s actions did not suit the provision under Section 5.1.1 of the Agreement. And given the fact that PwC was VLog’s financial advisor, PwC’s actions on the Seller’s account are attributable to it.115 The price adjustment process could not be carried out in the manner provided for in the Agreement because, for causes attributable to VLog, PwC never even submitted a Reviewed Balance Sheet audited by it, or for which it would at least accept responsibility.

D. Report submitted by E&Y

198.
Having received the report prepared by PwC, Claimant did not agree with its result and appointed E&Y, an audit firm, to validate the Reviewed Balance Sheet, apprising Respondents 1 and 2 of such fact through a letter dated November 19, 2007.116 E&Y sent its report to Respondents 1 and 2 on December 4, 2007,117 and according to such report VRG’s working capital as of April 8, 2007 was negative by R$ (123,149,597).
199.
In regard to that report prepared by E&Y, Respondents complain that it is unsupported by the price adjustment procedure provided for in the Agreement, since assurance reports involve no auditing procedure or review of historical financial information.
200.
Now, under the Agreement, what was required by Section 5.1.3.1 was for E&Y to submit a "validation of [PwC’s Reviewed Balance Sheet]," indicating whether or not there were any divergences with said balance sheet.
201.
Under analysis, the report submitted by E&Y shows that this audit firm, instead of analyzing and diverging from the PwC Reviewed Balance Sheet, seemingly examined "the specific balance sheet of VRG Linhas Aéreas S.A. drawn up as of April 8, 2007 by GTI’s Management," thus straying from what had been agreed to in the Agreement, and failing to present such divergences as called for in Section 5.3.3.1 of the Agreement. Summing up: neither Respondents nor Claimant made their actions suit the provisions agreed to in Section 5 of the Agreement.

E. Appointment of a Third Audit Firm

202.
In accordance with Section 5.1.3.1 of the Agreement, in the event of a disagreement as regards the result reached by PwC and the result reached by the audit firm appointed by the Purchaser, both of them by mutual agreement should have appointed a third audit firm.
203.
It is indisputable that said third audit firm has never been appointed. According to Claimant, this is due to the fact the PwC responded by indicating that it was not its obligation to choose what firm might be retained to resolve the divergences, while Respondents say that, because Claimant did not submit a valid challenge under the Agreement, the price adjustment was determined by PwC with the result reached in its Reviewed Balance Sheet, and therefore the appointment of a third audit firm was inadmissible.
204.
The Tribunal is not going to rule on who is to blame for not appointing a third top audit firm, because such a ruling does not seem relevant to decide this litigation. What is relevant to mention is that the mechanism the parties agreed upon for determining the price adjustment amount has been foiled. And it has been foiled ever since the first stage, because the work done by PwC did not comply with contractual stipulations. PwC should have audited the Reviewed Balance Sheet as of April 8, 2007, and it never did, having submitted a report titled "Draft for Discussion Subject to Change," in which they expressly indicated that the balance sheet submitted "may require significant adjustments and/or contain material errors." In the second stage, E&Y did not do exactly what the Agreement provided for either. It should "validate" PwC’s report, and what it did was to review an altogether different balance sheet prepared by GTI’s management - acting quite differently than as provided for in the Agreement.
205.
Wherefore, the Arbitration Tribunal concludes that the price adjustment mechanism agreed upon by the parties in Section 5 of the Agreement has been foiled, first because of a breach attributable to Respondents 1 and 2, and then because of a breach attributable to Claimant, which consequently has caused the price adjustment not to be determined yet.

V. IF THE ANSWER TO THE QUESTION (No. 1) IS THAT THE PRICE ADJUSTMENT HAS ALREADY BEEN DETERMINED, THE QUESTION TO BE ASKED IS BY WHOM, AND WHAT IS THE ADJUSTMENT AMOUNT RESULTING THEREFROM ?

206.
By virtue of the answer given by the Tribunal to the first question, the answer to this question is prejudiced.

V.3 IF THE ANSWER TO THE QUESTION (No. 1) IS THAT THE PRICE ADJUSTMENT IS YET TO BE DETERMINED, THE QUESTION ASKED IS WHO SHOULD MAKE SUCH ADJUSTMENT: A THIRD PARTY DESIGNATED BY THE ARBITRATION TRIBUNAL OR THE ARBITRATION TRIBUNAL ITSELF ?

1. CLAIMANT'S POSITION

207.
According to Claimant, the parties have established that any disputes "arising out of or in connection with" the Agreement should be resolved by arbitration as provided for in Section 14 of the Agreement.118 Thus, and irrespective of the legal nature of the price adjustment, pursuant to Section 14 the parties have authorized the Arbitration Tribunal to rule on the dispute arisen between the parties, which in this case concerns the making of the price adjustment.
208.
According to Claimant, we have before us a modality of transaction per relationem,119 according to which the parties have set the price, but determined to have an audit subsequently conducted to verify whether the accounting that served as a basis for setting the price was accurate.
209.
Claimant says, in connection with one of Respondents’ arguments, that this case is far removed from the event under CC article 485,120 according to which if the price setting is subject to a third party’s discretion, should the third party not accept such charge, the contract would be void; in the Agreement the price was set, as provided for in Section 14 thereof, at US$ 275 million.
210.
According to Claimant, a systematic construction of the Agreement, with a joint analysis of Section 5.1.3.1 and Section 14, would allow for the conclusion that the parties have defined two consecutive solutions to such an impasse: (i) a "pre-arbitral" solution - the two audit firms should nominate a third audit firm to resolve the impasse, or (ii) in the impossibility of carrying out the pre-arbitral mechanism, the solution to the impasse should be resolved by the Arbitration Tribunal.121
211.
Claimant has attached to the case records, for such purposes, a legal opinion by Professor Antonio Junqueira de Azevedo.122

2. POSITION OF RESPONDENTS 1 AND 2

212.
Respondents cite for such purposes CC article 112,123 concluding that in the case at hand the will of the parties in the price adjustment procedure leaves no room for any discussion.
213.
To Respondents 1 and 2, the price adjustment procedure established in Section 5.2 could only have two possible outcomes:

- Either the Reviewed Balance Sheet drawn up by PwC suffered no valid challenge, as provided for in Section 5.1.3.1 of the Agreement, and should prevail solely to ascertain the final balance, as provided for in Section 5.2 of the Agreement;

- Or it must be understood that such balance sheet was validly challenged by GTI and, in such event, a third audit firm needs to be appointed to submit a conclusive report.

214.
According to Respondents 1 and 2, the Arbitration Tribunal cannot be the one to decide the price adjustment, because this would imply a disregard of something contracted between the parties, and the Brazilian legal system therefore would be violated; moreover, in such event, Section 5.1.1 of the Agreement would be voided, which would subject its judgment to being declared null and void.
215.
In the second event, Respondents 1 and 2 assert that the Arbitration Tribunal should appoint a third independent audit firm to resolve the divergences between the PwC Reviewed Balance Sheet and the balance sheet unilaterally submitted by GTI itself and attributed to E&Y.
216.
Respondents therefore conclude that if the Arbitration Tribunal rules that GTI’s challenge to the PwC Reviewed Balance Sheet is valid, the Tribunal itself could not be the one to rule on the merit of the price adjustment, because the procedure agreed upon by the parties has not been completed. And it would be inadmissible for the Tribunal to modify something agreed upon by the parties.

3. THE ARBITRATION TRIBUNAL’S RULING

217.
The Arbitration Tribunal has concluded in this award that the price adjustment is yet to be made, because the mechanism agreed upon by the parties in Section 5 of the Agreement was foiled by a breach attributable both to Respondents 1 and 2 and to Claimant itself. This situation offers two alternatives: either the Tribunal designates a third auditor to be in charge of calculating the price adjustment, or let the Tribunal itself be the one to calculate it.
218.
The Tribunal rules for that second option: let the Tribunal itself be the one to determine the price adjustment amount, because it believes that this is a solution grounded in the Law, and one that most faithfully fulfills the will of the parties. But in making its determination, the Tribunal shall not act discretionarily, rather, it shall adjust to the procedure designed by the parties themselves in Section 5 of the Agreement.
219.
The Tribunal’s ruling is based on the following grounds:

A. The Will of the Parties on such Designation

220.
In Section 5 of the Agreement, the parties established a mechanism to implement the price adjustment. In summary, after ANAC’s authorization, Respondents, as Sellers, should submit a Reviewed Balance Sheet to be audited by the PwC audit firm. Claimant, in turn, within a short time from Respondents’ submission of the new balance sheet, could nominate an audit firm to validate said balance sheet. In the event of a disagreement as to said amounts,

"the two audit firms shall choose by mutual agreement a third top audit firm... to resolve such disagreements."124

221.
The Agreement therefore allows for the freedom of having a third audit firm designated to resolve a divergence between the two audit firms chosen by the parties (PwC and E&Y), which necessarily shall act by mutual agreement, and shall limit their choice to other top audit firms.
222.
According to the very literalness of the Agreement, the only ones having the freedom to designate a third auditor are the parties, through their audit firms (Section 5.1.3.1 of the Agreement).
223.
The Tribunal finds that the audit firms failed to designate a third auditor, such as provided for in the Agreement, which gave rise to the question of knowing whether the Arbitration Tribunal should make such designation (as Respondents and Claimant have moved in subsidiary motions) or whether it should determine the price adjustment directly (as Respondent has moved in its primary motion).
224.
In this case, the failure to appoint a third audit firm does not give rise to a "dispute [s] arising out of or in connection with this instrument,"125 which must resolved by the Arbitration Tribunal. The failure to appoint a third audit firm has given rise to a foiling of the appointment mechanism agreed upon by the parties, which gave them - and only them, through their audit firms - the freedom to appoint a third auditor. Such foiling is a factual issue that has occurred, and the Arbitration Tribunal may not otherwise go back and interfere in a stage of an already totally foiled mechanism.

B. The Price Adjustment is a Dispute submitted to Arbitration

225.
What does indeed constitute a "dispute[s] arising out of or in connection with this instrument,"126 is such determination of the price adjustment. There is effectively a subsisting underlying issue. As a result of Claimant’s primary motion, the Arbitration Tribunal shall ascertain the liabilities resulting from the alleged deficit in VRG’s working capital. This is the issue on merit to be decided in this award.

C. Providing Jurisdictional Relief

226.
Furthermore, otherwise, the effectiveness of the arbitral proceeding and therefore of jurisdictional relief would be compromised. Going to court is a constitutional assurance,127 and every citizen has the right to have its claims reviewed by a court and, based on Law 9,307/1996 ["Arbitration Act"], by an arbitration tribunal, provided that in the latter case the dispute involves only disposable property rights, and the parties have agreed pursuant to an arbitration agreement to submit their litigation to an arbitral proceeding.
227.
If the Arbitration Tribunal, instead of determining the right adjustment amount, were to go only as far as to appoint a third audit firm to do so, arbitral relief might turn out ineffective. This is because the commencement of arbitration belies the parties’ will to have their disputes resolved, which might not be resolved with the simple nomination of a third party, to the extent that the premises established in the Agreement for its work to be done would not be present. As neither auditor has fulfilled its worked, and the mechanism provided by the parties has been foiled, the only solution assuring jurisdictional relief is for the Tribunal itself to be the one taking on the resolution of such disputes are created by the alleged deficit in VRG’s working capital.

D. The Will of the Parties on Methodology

228.
To determine whether deficit exists in VRG’s working capital, the Tribunal shall prepare a Reviewed Balance Sheet as of the Consummation Date. And the question arises as to how to prepare such Reviewed Balance Sheet.
229.
Section 5.1.1 of the Agreement provides that the Reviewed Balance Sheet should observe "only and solely the same items and the same methodology" used in the Initial Balance Sheet.
230.
The Arbitration Tribunal has concluded that the price adjustment mechanism under Section 5.1.3.1 has been foiled, but the will of the parties as far as the guidelines to be followed in the preparation of the Reviewed Balance Sheet have [sic] not been impacted and, as such, they [sic] survive.
231.
Therefore, in its preparation of the Reviewed Balance Sheet, the Tribunal shall not act with absolute discretion, but shall adjust to the procedure designed by the parties.
232.
In applying this principle, the Tribunal has instructed each party to designate an accounting expert that might provide what must be, in the latter’s opinion, the Reviewed Balance Sheet as of the Consummation Date - such as mandated in Section 5.1.1 - "only and solely the same items, the same methodology" already used in the calculation of the Initial Balance Sheet.
233.
Having explained the grounds on which the Tribunal has based its ruling, one’s attention needs to turn now to a counterargument Respondents have offered.

E. Alleged Application of CC Article 485

234.
Furthermore, application of CC article 485128 to this case will not hold.
235.
According to said statutory provision, whenever price setting in a sale and purchase contract is left up to the discretion of a third party who does not accept such charge, the contract will be void. Said article addresses an event where the parties put a third party in charge of establishing the very criteria for price determination. In that event, the third party is acting as an arbiter of the contract amount, and because price is an essential requirement in a sale and purchase contract, its non-existence invalidates the agreement. As Prof. Junqueira de Azevedo says:129

"Article 485 must be construed restrictively, as it places a sanction on the parties by rendering their contract ineffectual if a third party fails to determine the price... Inefficacy is the exception, efficacy the rule."

236.
In this case, contrariwise, the price has already been defined in the Agreement and, according to Section 4.1, it amounts to US$ 275 million. In our case, what the parties have put a third party in charge of was just to adjust the price either up or down, hinging upon whether the working capital was, as of the Consummation Date, higher or lower than R$ 40,750,874. And the parties established the price adjustment criteria in their contract, with the third party expected to act only within such limitations as established by those criteria. Calculating the price was not made subject only to third-party discretion, and it can be perfectly determined. CC article 485 only applies if the third party does not accept the charge of setting the price. There is a contractually defined price here that can be adjusted by a third party or, in the latter’s stead, by the Arbitration Court - the route chosen by the parties to resolve any disputes arising out of their contractual relationship - according to guidelines ensuring its conformity to the stated will of the parties.

Summary

237.
The Arbitration Tribunal believes that it shall be the one to determine the price adjustment, but that it must do so based on the criteria established by Claimant and Respondents 1 and 2 in Section 5.1 of the Agreement: based on the accounting expert examinations provided by each party as regards what, in their opinion, the Reviewed Balance Sheet should be as of the Consummation Date, the Tribunal shall determine such adjustment by applying "only and solely the same items, the same methodology" already used in the drawing up of the Initial Balance Sheet.

V.4 IF THE ANSWER TO THE QUESTION (No. 3) IS THAT THE ARBITRATION TRIBUNAL SHOULD BE THE ONE TO DETERMINE THE PRICE ADJUSTMENT: WHAT IS THE PRICE ADJUSTMENT AMOUNT?

238.
The Arbitration Tribunal has already ruled that it shall be the one to determine the price adjustment.
239.
In resolving the issues submitted to it, the Arbitration Tribunal must take into account what the parties agreed upon - to the extent that what they agreed upon has not been foiled.
240.
The Arbitration Tribunal has construed, from the contents of the Agreement, that the parties have shown their joint will to be that the price adjustment should abide by the following guidelines:

- The base-balance sheet is the Initial Balance Sheet;

- Said Initial Balance Sheet has to be compared to a later balance sheet, as of the Consummation Date; the latter has to be drawn up with the parties’ participation, and using the "same items and the same methodology" as the Initial Balance Sheet;

- The balance between the Initial Balance Sheet and the Reviewed Balance Sheet as of the Consummation Date shall determine which party must be the creditor or debtor to the other and for what amount.

1. THE INITIAL BALANCE SHEET

241.
The price adjustment should be made by comparing the working capital in the Initial Balance Sheet, Appendix III to the Agreement, to the working capital in the Reviewed Balance Sheet. This Reviewed Balance Sheet should be drawn up, as mandated by Section 5.1.1, "observing only and solely the same items, the same methodology" applied to draw up the Initial Balance Sheet. Such work, to be done, first of all requires a detailed analysis of the Initial Balance Sheet by the Tribunal.
242.
The Initial Balance Sheet resides in Appendix III of the Agreement and, from a reference contained in a footnote, one can surmise that it was issued through VRG’s accounting services on March 18, 2007, at 4:36 p.m. - i.e., 10 days before the Agreement was signed. The title of such document is "VRG Balance Sheet - March 15, 2007," and it is divided into two major sections, "Assets" and "Liabilities:"

- "Assets" is comprised of two sections, "Current" and "Long-Term Assets," which are in turn divided into several chapters, and the latter into items, which together add up to R$ 132,996,718;

- "Liabilities" is contained in a single section, called "Current," where the amount is R$ 92,245,845,130 likewise divided into chapters, and the latter into many items.

243.
The items included in the Initial Balance Sheet are quite diverse in nature: some reflect the balance of one bookkeeping account, while others reflect the accumulated balance of several accounts.131
244.
The difference between Assets and Liabilities amounts to R$ 40,750,874. And such figure should reflect the working capital available to VRG as of the Initial Balance Sheet date. As expert witness Simonaggio convincingly explained:

"the way it was proposed in Section 5.1, it is meant to show what [net] capital surplus or shortfall was left in the company operationswise. Both assets, asset accounts, and liability accounts were accounts having the same characteristics of realizable rights or payable obligations of an operations nature. "132

Description of the Initial Balance Sheet in Section 5.1

245.
Section 5.1 of the Agreement provides a very detailed description of what the composition of the Initial Balance Sheet should be, with a breakdown into four major sections, divided into multiple chapters, and the latter into items:

(a) Current Assets

(b) Long-Term Assets

(c) Current Liabilities

(d) Long-Term Debt

246.
The first thing one’s attention is drawn to is that the Initial Balance Sheet, effectively attached to the Agreement as Appendix III, includes certain items Section 5.1 did not provide for:

- In Assets: "Prepayments - Fuel-BR" and "Prepayments - Serv. Bordo BAHIA;"

- And in Liabilities: "Vendors - Law Firm" and "Related Companies -LOGISTICA."

247.
On the other hand, Section 5.1 includes a section (d), "Long-Term Debt," but such section does not appear on the Initial Balance Sheet.
248.
Consequently, even though Section 5.1 says that the only items to be taken into account for calculating the price adjustment shall be "solely" those mentioned therein, such assertion is contradicted by Appendix III to the Agreement itself, which does not adjust precisely to what is provided for in the "corpus" of the Agreement.
249.
Another particular feature of the Initial Balance Sheet is contained in the three columns with figures: the first one is named "VRG SAP," the second one "VRG and UPV," and the third one is the sum of the first two. Some items have amounts in both columns, others only in either one or the other. Expert witness Simonaggio133 explained that the "VRG SAP" column reflected the figures showing in the company’s accounting system, while "VRG and UPV" reflected the balances [showing] with UPV’s National Register of Legal Entities ["CNPJ"], but which in reality corresponded to VRG. It seems like, after December 15, 2006, transactions continued to be made under UPV’s CNPJ [number], and this is why such activities were recorded in UPV’s books, but were identified as corresponding to VRG.134

How was the Initial Balance Sheet prepared?

250.
From the evidence produced, it can be surmised that the Initial Balance Sheet was prepared by the Seller itself and by Respondent 4, during the last phase of the negotiating process. Its preparation started on March 15, 2007, when Mr. Lap Chan, MatlinPatterson’s chief executive, asked Mr. Márcio Antônio Nobre, then in charge of VRG’s accounting, to prepare a complete balance sheet for said company, which was drawn from its accounting system at 7:42 p.m. A copy of said balance sheet has been attached to the case records,135 with handwritten notes, which Mr. Lap Chan has acknowledged to be his own.136 A few minutes later (at 8:25 p.m. and at 8:54 p.m.), following Mr. Lap Chan’s instructions, Mr. Nobre prepared a second balance sheet, of which a copy has also been submitted, with notes likewise in Mr. Lap Chan’s handwriting. In this second balance sheet, vis-à-vis the previous one, liabilities were unchanged, but certain items were excluded from assets.137
251.
The second balance sheet as of March 15th unquestionably served as a basis for the preparation of the Initial Balance Sheet included in Appendix III. It has been proven that Mr. Lap Chan was the one who ordered, based on the balance sheets, certain modifications introduced so as to obtain the Initial Balance Sheet (this issue shall be analyzed in greater detail in paragraph 590 et seq. below). With such modifications as were introduced, a balance sheet representing faithfully a picture of the entire equity became a balance sheet showing only the working capital relevant to the price adjustment.

Submission to the Purchaser

252.
Once prepared, following Mr. Lap Chan’s instructions, the Initial Balance Sheet was delivered to GTI.
253.
KPMG, the Purchaser’s advisors, explained in detail the Initial Balance Sheet discussion process between the two parties. This stage lasted one day, and consisted of a meeting between Claimant, and its advisors, and VRG’s representatives, which - as far as KMPG’s executive officers recalled - was also attended by PwC.138 It is possible that PwC actually attended the meeting, but if it did, it does not seem like PwC made it clear to KPMG that it had not done any work reviewing the numbers (as today we know per paragraph 184 above).
254.
From the evidence made, it cannot be surmised that the Purchaser had the opportunity to perform a detailed analysis of the figures presented in the Initial Balance Sheet - but on the contrary, its work seems to have been limited to receiving information through its advisor. Good evidence that the Initial Balance Sheet was not the subject of careful review is that it shows evident numerical errors.139 The Purchaser’s attitude is justifiable, because according to what had been agreed, the Initial Balance Sheet constituted only an interim calculation, which was yet be audited by PwC and, as the case may be, by one or two additional auditors.
255.
Summing up: the Initial Balance sheet was prepared, following Mr. Lap Chan’s instructions, based on data contained in VRG’s accounting system. The Initial Balance Sheet form was submitted to the Purchaser and its advisors at a single working meeting, with nothing on record showing that, as a result of such meeting, any modification was introduced in the form proposed by the Seller.

2. PREPARATION OF THE REVISED BALANCE SHEET

256.
The Tribunal has the difficult job of drawing up the Revised Balance Sheet for the Effective Date. In order to carry out this task, the Tribunal asked the parties to appoint accounting experts (A). The tribunal will study the items and methodology agreed upon by the parties pursuant to contract (B) and, finally, decide on an item-by-item basis the actual configuration of the Revised Balance Sheet.

A. The evidence submitted by the parties

257.
The Agreement set forth that the price was to be set by means of preparation of a Revised Balance Sheet, with data as of April 8, 2007, which was to be audited by PwC, and which, should there be any discrepancy, would be submitted for a procedural review by an auditor designated by the Purchaser and by a third audit company appointed by means of mutual agreement. This signified the willingness of the parties to give both parties the chance to participate in the mechanism for setting the price.
258.
Given that the procedure set out by Agreement had been disregarded, the Arbitration Tribunal decided to respect the volition of the parties and asked each to submit individually its expert report. For this purpose, it asked the parties to appoint an accounting expert in which each had confidence, leading the expert appointed by the Claimant to conclude:

"(i) if it is in agreement or disagreement with the balance sheet annexed as attachment III to the Agreement drawn up by PwC ("the Revised Balance Sheet") and in the event of disagreement to identify and justify each and every item and sum with which it is in disagreement, with due regard for—-just as required pursuant to Clause 5.1.1.— "only and exclusively the same items, the same methodology which is referred to in Clause. 5.1, having as the base date the day preceding the event mentioned in Clause 9.2."

and in order to have the expert appointed by the Respondents answer

"(i) the allegations of the Claimant as to any disagreement that it may have had with the balance sheet annexed as attachment III to the Agreement, with due regard for—just as required by Clause 5.1.1.— "only and exclusively the same items, the same methodology which is referred to in Clause 5.1, having as the base date the day preceding the event mentioned in Clause 9.2"; (ii) the liability referring to the liability of Respondent 4 in light of any price adjustment."

259.
The Claimant designated as its expert Mr. Silvio Simonaggio and the Respondents designated as their expert Mr. Milton Rodrigues de Sá. Both experts did an excellent job, and they were able to engage in a dialogue between them, thereby being able to establish exactly the scope of any discrepancies, and their work was very well looked upon by the Tribunal.

Expert reports of the Experts

260.
The First Simonaggio Expert Report is dated June 8, 2009. In this report, the expert based himself on the equity balance sheet for VRG on the Effective Date and taking this balance sheet as a point of departure, he calculated a financial balance sheet, analogous to the Initial Balance Sheet dated March 15, 2007, but dated April 8, 2007. The current assets on this financial balance sheet were shown to be negative, being as much as R$ (99,226,212). Given that the Initial Balance Sheet attached to the Agreement had shown positive current assets of R$ 40,750,874, the price adjustment in favor of the Claimant would amount to R$ 139,977,086 in the opinion of the expert Mr. Simonaggio.
261.
The First Simonaggio Expert Report was revised by the expert appointed by the Respondents, Mr. Rodrigues de Sá, in the First Rodrigues de Sá Expert Report dated August 10, 2009. In this report, Mr. Rodrigues arrives at the conclusion that the financial balance sheet as of April 8, 2007 was correctly calculated, showing positive current assets of R$ 25,807,430.1 Comparing this figure with the positive current assets, guaranteed in the Initial Balance Sheet, of R$ 40,750,874, one sees that the current assets diminished between March 15 and April 8, and as a consequence a price adjustment had to be made, which was favorable to the Purchaser, and equal to this same reduction (specifically R$ 14,943,444).
262.
Both experts appeared together at the hearing held on 9, 10, and September 11, 2009, and they went into great detail regarding the respective stances they had taken. Taking into account their statements, the Tribunal asked at the evidentiary hearing for both experts to submit an additional report consisting of:

(i) first, [they were to submit] an exposition of the arguments both pro and con as regards their position in connection to each difference between them, putting greater emphasis on the differences pertaining to more than one million Brazilian reais and lesser emphasis to the smaller differences;

(ii) as to the liabilities, at least as to the large sums [ to ] specify whether these were or were not paid, and in the latter case, why;

(iii) as to the information regarding the time period referring to the origin of the debts and the assets, the Tribunal feels that it is a great cost and effort to set out to the very last Brazilian real the exact description of the time when the expenditures actually originated; for this reason, if that information could be given this would be a help, but if it is too complicated to obtain it, the Tribunal reserves the right to, should it be necessary, draw up its decision or procedural order so as to obtain this information."2

263.
The expert Mr. Simonaggio filed on November 17, 2009 his Second Simonaggio Expert Report, and, when reviewing the conclusions reached in his First Report, concluded that the current assets as of the Effective Date had increased to R$ (73,699,724), which entailed a price adjustment in favor of the Purchaser of R$ 114,450,597.3
264.
The expert Mr. Rodrigues de Sá also submitted on this very same date (November 17) a Second Expert Report, in which he concluded that the currents assets as of April 8, 2007 had risen to R$ 36,298,593. In addition, just in case the Tribunal were to feel that this balance should reflect the adjustments resulting from supervening events, with which position the expert does not agree, the current assets would then increase to R$ 19,975,049. The price adjustment in favor of the Claimant would in the first case be on the order of R$ 4,452,281 and in the second case, R$ 20,775,825.4
265.
As we see, based on the four reports submitted by the experts, it is set out in every single case that the actual current assets of VRG as of April 8, 2007 were less than the amount established in the Initial Balance Sheet, due to which throughout the case it occurs that a negative price adjustment is being made, that is, that the Seller may return to the Purchaser the excess price paid. The experts do not agree on the figures for this price adjustment, which varies between:

- R$ 139,977,086 in the Simonaggio First Report and R$ 114,450,597 in his Second Report; and

- And R$ 14,943,444, R$ 4,452,281 and subsidiarily R$ 20,775,825 in the First and Second Rodrigues de Sá Reports.

B. Explanation as to the discrepancies

266.
It is important to understand just how these discrepancies between the two experts, and especially between the Second Simonaggio Expert Report and the Second Rodrigues de Sá Expert Report came to be. These discrepancies have nothing whatsoever to do with the numbers, given that, after working together, they were capable of establishing just one data source. The discrepancies, in fact, are of a contractual and/or conceptual nature. And they result from a principle set out in Clause 5.1 of the Agreement: the Reviewed Balance Sheet as of April 8, 2007 should be drawn up "with due regard for only and exclusively the same items, the same methodology" applied in the Initial Balance Sheet. The construction of this principle allows for two types of discrepancies, which in good part explain the different results achieved by the two experts.
267.
Let us look at this in detail:

(a) "Same items"

268.
The expert Rodrigues de Sá, and, along with him, the Respondents, hold that the expression the "same items" means that only exactly the same accounts and subaccounts selected can be included in the balance sheet as of April 8. In their opinion, the Initial Balance Sheet represents:

"a "gathering": "when examining what is set out in the agreement (Clause 5.1) it is clear that the equity balance sheet for the company was not taken into consideration, but rather when setting out the "financial balance sheet" certain specific accounts were taken into account. A "gathering" of accounts represented by sums from the assets and liabilities previously selected by the parties at the time of negotiation of the contract [ was used ]. There was however a decision on the part of the parties involved to refrain from consideration of certain accounts, although these accounts might exist both in the assets and the liabilities."5

269.
In fact, in the opinion of the Tribunal, the situation is more complex than set out in the description provided by the Respondents. On the one hand, there is quite a bit of confusion as to just what concrete items should go into the Initial Balance Sheet: Clause 5.1 offers a detailed list, but then Attachment III to the Agreement includes items not previously mentioned, and does not mention others that are indeed set out in the body of the Agreement. It seems quite clear that under these circumstances, any and all attempts to resort to a literal construction should be abandoned.
270.
The facts show that it was the executive officer of Respondent 4 (controlling party of the Sellers), Mr. Lap Chan, who decided to provide the accounts that were to make up a portion of the Initial Balance Sheet, and that the witnesses were not in agreement as to the scope of the agreement with regard to inclusion or exclusion of certain items.
271.
In summation, it is not feasible to adopt an a priori position that will be valid in each case, so as to determine whether a certain account or subaccount should or should not be part of the Revised Balance Sheet as of April 8, 2007; it will be necessary to look into various factors in an attempt to decide just what the volition of the parties in fact was.

(b) "Same methodology"

272.
Mr. Rodrigues de Sá explains that

"When the balance sheet was drawn up on the date of March 15, 2007 (attached to the agreement), only the accounting balances were taken into consideration, without there being made any reference whatsoever to "supervening facts," that is, sums predating this that had perchance not yet been accounted for"… "Of course, if all these sums, predating December 15, 2006 or from that date up to March 15, 2007, had been taken into consideration when drawing up the balance sheet attached to the agreement, the balance of R$ 40.75 million would not stand. The basis for comparison with the balance as of April 8, 2007 would therefore be different."6

273.
In this respect, the stance taken by the Tribunal cannot coincide with that taken by the expert.
274.
The procedure agreed to in Clause 5.1 of the Agreement when adjusting the price demanded that the balance sheet as of the Effective Date, which was to serve as the basis for its calculation, be audited by PwC. And every due diligence carried out in Brazil requires that the auditors show that the accounts that it is certifying also have been prepared in accordance with Brazilian Accounting Principles and Guidelines. Therefore, the criterion for including or excluding a supervening fact on the Revised Balance Sheet as of the Effective Date, cannot be the inclusion or exclusion of the Initial Balance Sheet, but instead the conformance to Brazilian Basic Accounting Principles. If on the Initial Balance Sheet a supervening fact was excluded, but this exclusion represents a violation of the Brazilian Basic Accounting Principles, the error should be corrected and the fact should be included on the balance sheet as of April 8. And to the contrary: if the exclusion did not violate the Brazilian Accounting Principles and Guidelines, the fact will have been correctly excluded on the Initial Balance Sheet, and this situation should continue on the Revised Balance Sheet.

C. Configuration of the Revised Balance Sheet

275.
In order to prepare the Revised Balance Sheet, the Tribunal decided to compare on an item-by-item basis the Revised Balance Sheets contained in the Simonaggio and Rodrigues de Sá Expert Reports. This comparison could give rise to two results:
276.
In the first, the items contained in the Revised Balance Sheets prepared by the experts coincide, and the Tribunal considers them to have been ratified, approving their having been carried out in compliance with the methodology agreed on (a). In the second case, the items contained in each one of the balance sheets drawn up by the experts are not in compliance, and in this case the Tribunal will scrutinize on a case-by-case basis each discrepancy, will study the stance taken by both parties and their experts, deciding as to the value of each item that should be included in the Revised Balance Sheet as of the date of effectiveness (b). All of this will go into the Revised Balance Sheet.

(a) Items that both experts agree on

Revised Balance Sheets as of the Effective Date (April 8, 2007)
Respondents Claimant
CURRENT
ASSETS
Availabilities
Cash 2,872,292,49 2,872,292,4
Banks 3,933,103,82 3,933,103,8
BSP Receivables 69,186,798,35 69,186,798,3
Credit Cards 91,852,196,13 91,852,196,1
Client Accountholders (464,777,47) (464,777,47)
Government Agencies 4,034,442,87 4,034,442,8
Smiles 4,846,757,59 4,846,757,5
Balance Sheet Adjustments (162,883,679,39) (162,883,679,39)
Advance Payments - Supplier Advance - VEM 5,885,621,29 5,685,521,20
Advance Payments -Supplier Advance-Fuel -BR 803,211,08 803,211,00
Adv.Payments -Suppl. Advance-Fuel-GATE 3,047,000,00 3,047,000,0
Adv.Pay. -Suppl. Advance-Onb. Serv. BAHIA -
Adv.Pay. -Suppl. Advance-Onb. Serv. Others -
Advance Payments - Others 911,608,61 9.11.608,61
Company Related (Lease-Basements-Logistics) -
LONG-TERM REALIZABLES -
Deposit by way of guarantee
Deposit/guarantee - Euroatlantics 1,010,765,38 1,010,765,30
Deposit/guarantee -Sojitz 362,921,00 362,921,00
Deposit/guarantee- Aeroturb. Aircraft 6,391,642,00 8,391,642,00
Deposit/guarantee-SR Stecnics Aircraft 261,720,00 251,720,00
Deposit/guarantee-Wells Fargo 8,611,680,00 8,611,680,00
Deposit/guarantee -ACTS Technical 1,599,312,00 1,599,312,00
Deposit/guarantee-Pegasus 283,980,00 283,980,00
Deposit/guarantee BSP (US$16,000,000.00) 38,726,783,83 38,725,783,83
Other Credits -
CURRENT
LIABILITIES
Suppliers
Suppliers- Law firms (743,576,49) (743,578,49)
Suppliers - IBM - -
Charges, taxes and contributions
Charges, taxes and cont. - IR W/O PAYROLL (1,161,731,85) (1,161,731,85)
Charges, taxes and cont. - OTHERS 1,080,365,40 1,080,385,40
(-) Credit request - INFRAERO 2,646,544,25 2,646,544,25
Wages and social charges (8,358,667,15) (8,358,687,16
Leasing payable - Maintenance reserve 84,501,91 84,501,91
Related companies - -
Related companies - LOGISTICS - -
Accounts payable - insurance 399,884,20 399,884,20
Accounts payable - crew per diems (183,988,14) (183,968,14)
Transports to be executed (38,792,082,10) (38,792,082,10)
Vacation and social charges provisions (8,199,026,98) (8,199,026,98)

(b) Detailed study of the discrepancies

277.
In full agreement as to these general guidelines, it is necessary for the Tribunal to scrutinize each and every one of the discrepancies that the expert for the Respondents, Mr. Rodrigues de Sá, indicated with regard to the report of the expert of the Claimant, Mr. Simonaggio. In order to do so, the Tribunal will follow the same order as the exposition followed by Expert Rodrigues de Sá and, in each case, will decide which criterion adopted by one or the other expert it prefers, taking the discrepancies under examination on an individual basis.

I. DISCREPANCIES WITH REGARD TO THE ASSETS

3.1. ACCOUNTS RECEIVABLE: OTHERS

278.
On the Initial Balance Sheet, the item "Accounts receivable: Others" showed a balance of R$ 849,802. For reasons that none of the experts can explain, this item from the assets increased quite significantly between March 15 (date of the Initial Balance Sheet) and April 8 (date of the Revised Balance Sheet). The discrepancy entails the fact that the expert for the Claimant holds that on April 8 this item amounted to R$ 44,826,009, while the expert for the Respondents reduces this sum to R$ 43,371,369. The difference comes to R$ 1,454,640. Please note further that as regards this point the positions of the experts are reversed: the expert for the Claimant holds that the assets are greater than the expert for the Respondents.

A. Position of the Claimant

279.
The Claimant alleges that when scrutinizing the agreement, the party making this scrutiny should cleave to the volition of the parties and not go by the literal text. According to the Claimant, the parties created a method for carrying out the price adjustment that pertains to all accounts and subaccounts of the same accounting type.7 Therefore, the Claimant concludes by stating that the accounts and subaccounts that, pursuant to generally accepted accounting guidelines, have the accounting nature of accounts receivable should be part of the Revised Balance Sheet for purposes of price adjustment.8 And this would include credits arising from transactions carried out at the Varig stores, entailing payment by means of electronic cards.9

B. Position of the Respondents

280.
According to the Respondents, the subaccounts specifically chosen by the parties to compose the item "Accounts receivable: Others" are those existing on the Initial Balance Sheet, and the scrutiny of the financial balance sheets of VRG on March 15, 2007 and April 8, 200710 allows for the correct identification of these subaccounts.
281.
According to Respondents 1 and 2, even though the account is described under the heading"others," this fact does not mean that any other accounts receivable could be included in the price adjustment.
282.
Respondents 1 and 2 allege that three of the subaccounts in this discrepancy (pertaining to group 1141) included in the main account "accounts receivable: others" are in fact pertinent, that is, there is a link to the other group 1141 accounts that were included in the Initial Balance Sheet and ascribed the value of R$ 0 (zero),11 according to which they should not be taken into account for purposes of determining the price adjustment.

C. Analysis of the Arbitration Tribunal

283.
In order to perfectly understand this discrepancy, it is necessary to start with an analysis of the Initial Balance Sheet on which, under the assets, mention is made of an item called "Accounts receivable: Others" with the sum of R$ 849,802. This item does not represent an account in and of itself, but it is the result of a series of accounts that have been added together.12
284.
When it became necessary to calculate this same item on the Effective Date, the expert Mr. Rodrigues de Sá added the five accounts highlighted in the chart below, which on March 15 had a balance of zero, but on April 8 these accounts reportedly had a balance:
285.
The expert Mr. Simonaggio is in agreement with this addition, but he also further proposes that three more accounts be added, which all together total the R$ 1,454,640 that is under discussion, and which are as follows:
286.
The expert Mr. Rodrigues de Sá does not agree with this inclusion, and his argument is as follows: in the total balance sheet for VRG, attached by PwC to its report and reproduced by Mr. Rodrigues de Sá in his First Expert Report, the Assets are divided into the following headings:

- Banks

- Cash remittances

- Accounts receivable

- Related companies

- Inventory

- Taxes to be reimbursed

- Deposits by way of guarantee

- Prepayments

- Advance expenses

- Other credits

287.
The five accounts that Mr. Rodrigues de Sá accepted having added to the original accounts included for purposes of calculating the item "Accounts receivable: Others" are all subaccounts covered under the heading "Accounts receivable." However, the three accounts that the expert Simonaggio intends to add do not pertain to this heading, but rather to a different heading called "Other credits." This heading has 13 subheadings, and three of these are precisely the ones that are the subject matter of this discrepancy.
288.
Having described what happened, it is easy to understand the stance taken by the experts: Mr. Simonaggio holds that his three accounts in reality represent "Accounts Receivable" and therefore should be a part, just as the five subaccounts accepted by the expert for the Respondent were added. On the other hand, Mr. Rodrigues de Sá does not deny that the three accounts actually represent business credits pending receipt, but he alleges that, when being included under the heading "Other credits" and not under the heading "Accounts receivable" they should not be taken into account.
289.
In this respect, the Tribunal takes the same position as the expert for the Respondents. It is a fact that on the Initial Balance Sheet certain accounts that were part of the current assets were not included. And among the accounts not included one finds precisely that account "Other Credits." And there is no discussion that on the Initial Balance Sheet the item "Accounts receivable: others" is included.
290.
Clause 5.1.1. says that the Revised Balance Sheet of April 8 should be prepared "only and exclusively [with the] same items" used for the Initial Balance Sheet. This wording sought exactly to avoid the problem that we are now encountering: that there might arise discussions as to the inclusion or exclusion of certain accounts. And in order to avoid this, the Agreement states that the Revised Balance Sheet is drawn up with exactly the same items, that is, with the same accounts as those included on the Initial Balance Sheet.

Decision

291.
For the reasons now discussed, the Tribunal concludes that the correct sum to be included in the item "Accounts receivable: others" on the Revised Balance Sheet as of the Effective Date amounts to R$ 43,371,369.

3.2. AMEX AND VISA DEPOSIT[S] BY WAY OF GUARANTEE

292.
The Initial Balance Sheet showed, under the heading Current Assets, two deposits by way of guarantee, one in favor of American Express (Amex) for the sum of R$ 1,271,186 (equivalent to United States $ 605,615) and the other in favor of Visa in the amount of R$ 4,796,155 (equivalent to United States $ 2,116,436). These assets came from Old Varig, and had been transferred to VRG as a consequence of an auction.
293.
Visa and Amex normally are debtors to an airline, because the price for the airfare paid by way of credit card owes. But Old Varig had the practice of canceling its flights frequently, and consequently the final consumers asked for return of the tickets paid, and Visa and Amex finally demanded that Old Varig make deposits by way of guarantee to ensure return of the sums paid up front. These deposits were then transferred to VRG together with the other assets that were part of the auction.

A. Position of the Claimant

294.
As to the first deposit by way of guarantee (Amex), the expert for the Claimant states that the discrepancy is R$ 1,229,398, which was reimbursed by Amex on March 21, 2007 to the Old Varig current account.13 It stated that these assets no longer existed as of the base date of April 8, 2007, as this money was returned to the depositary before this date.
295.
With regard to the second deposit by way of guarantee (Visa), there is a discrepancy of R$ 4,296,365; the expert for the Claimant alleges that the background as to the transactions with Visa shows that these deposits were absorbed thereby so as to repay obligations of the Old Varig, which had been occurring since the UPV period, and it was ratified that this asset was never at the disposal of VRG.14
296.
The Claimant argues, basing itself on its expert, that, if only by way of a hypothesis, if one holds that the asset should be computed into the Revised Balance Sheet, even then it could never be for the amount mentioned, given that on April 8, 2007 the balance of the deposit was R$ 3,692,000.15
297.
In response to the arguments of the Respondents, the Claimant states that as to the accounting techniques an asset ceases to be an asset if its realization depends on handing down of a decision in a court suit, without there being any immediate perspective of repayment.16

B. Position of the Respondents

298.
According to Respondents 1 and 2, the documentation attached by the Claimant does not allow one to conclude that the money paid by Amex refers exactly to the amounts arising from UPV (the Varig Business Unit).17
299.
The Respondents state that the procedures carried out by their expert did not enable them to obtain reliable information on the VRG accounting records that would allow them to make the correlation between the amounts deposited by Amex and the rights adjudicated to VRG pursuant to the UPV auction.
300.
They conclude that, even should Amex have erroneously transferred this money to Old Varig, it fell to the Claimant to claim such right based on the Public Notice. Respondents 1 and 2 feel that VRG should take such action as is needed to recover the money and not include these amounts for price adjustment purposes.
301.
Now, with regard to the deposits by way of Visa guarantee, Respondents 1 and 2 affirm that the discrepancy is similar, and that their expert cannot, based on the documentation used, conclude that Visa had used up the deposit by way of guarantee to repay Old Varig debts.
302.
Once again, Respondents 1 and 2 state that, if it were so, then VRG should take such measures as are necessary to obtain the assets and not to charge Respondents 1 and 2 for this.
303.
The Respondents end by saying that the conclusions reached in the Second Simonaggio Expert Report do not take into account the directives set by the Arbitration Tribunal for drafting of this document, as the expert took into consideration "information that was not made available to the [expert] retained by Respondents 1 and 2."18 Respondents 1 and 2 therefore ask that the Second Simonaggio Expert Report in relation to this item be disregarded.
304.
According to Respondent 4, there is no way of showing via documentation that the fact alleged by the Claimant actually occurred, that is, that the Amex deposit was returned to Old Varig.19 However, Respondent 4 states in tandem with Respondents 1 and 2 that even were it to be true that Amex had returned the deposit by way of guarantee to Old Varig, we would still have a situation whereby VRG would have purportedly opted to not claim its right. Now, with regard to the Visa deposits, according to Respondent 4 there is no proof whatsoever that these deposits were used up.20

C. Analysis of the Arbitration Tribunal

305.
The Arbitration Tribunal finds itself with a triple decision before it: in the first place, it must resolve a procedural incident posed by Respondents 1 and 2, whereby they allege that for procedural reasons the Second Simonaggio Expert Report should be disregarded (a); in the second place, it will look into whether VRG benefited from the deposits by way of guarantee (b); and in the third place it will examine the subsidiary arguments posited by the Respondents, according to which VRG should have filed against Old Varig due to lack of compliance with the Public Notice (c).

(a) The procedural issue formulated by Respondents 1 and 2

306.
The Respondents submitted to the Tribunal a communication21 whereby they requested that the heading referring to the "Deposit by way of guarantee – Visa" in the Second Simonaggio Expert Report be disregarded, under the penalty of violation of due legal process. This was requested because it is stated in said expert report that Mr. Silvio Simonaggio had the opportunity of having "interviews with VRG employees."22
307.
In light of this argument, the Claimant alleged that the information provided by the VRG management had already been presented in the first expert examination that was fully debated at the discovery hearing. Furthermore, the Claimant stated that the expert for Respondents 1 and 2 did not make any objection whatsoever as to the deficiency of information during the 57 days that went between the Tribunal Order dated September 21 and the delivery of his opinion on November 17.
308.
It behooves mentioning that, in light of the decision of the Arbitration Tribunal, the discussion with regard to partial disregard of the Second Simonaggio Expert Report loses its practical relevance, given that the claim will be partially rebuffed by the Arbitration Tribunal: the Arbitration Tribunal will disregard proven facts that the expert says he knows only due to interviews with VRG employees. Consequently, it is not essential for the Tribunal to adopt a formal stance with regard to the procedural issue filed by the Respondents.

(b) What actually happened to the deposits by way of guarantee

309.
In order to learn just what happened to the deposits by way of guarantee, it is necessary to differentiate between the Amex deposit and the Visa deposit.
310.
With regard to the Amex deposit, the expert Mr. Simonaggio convincingly demonstrated in his Second Expert Report23 that on March 21, 2007 Amex returned the deposit, not to VRG but rather to Old Varig. As this occurred, there is no doubt that the Revised Balance Sheets as of the Effective Date should not include the Amex deposit by way of guarantee, given that it already had ceased to exist.
311.
The situation with regard to the Visa deposit by way of guarantee is totally different.
312.
This deposit was made to a bank account opened in the name of Visa, and it was Visa that had full access to the funds. Visa used this deposit to repay the indebtedness of Old Varig that was continually arising. On the Effective Date, Visa had already used up a significant part of this and—in accordance with the proof submitted by the expert Mr. Simonaggio24—there only remained R$ 3,692,000 in the account. According to the expert, this remaining balance was used by Visa, subsequent to the Effective Date, in order to offset debts of Old Varig. And the proof on which the expert bases his conclusion is the simple statements made by the VRG directors, without citing any back-up documentation.
313.
The problem raised by this last affirmation by the expert is that it seems odd that after the Effective Date Visa continued offsetting indebtedness incurred by Old Varig, which by definition had to have arisen before December 15, 2006 (the date on which VRG took over the company) against a deposit made by New Varig. In this regard, the Tribunal thinks that the statement made by the expert is not sufficiently substantiated by the proof and, in view of this, the Tribunal will accept that the Visa deposit by way of guarantee as of the Effective Date be set at R$ 3,692,000.

(c) The possibility of VRG's making a claim against Old Varig

314.
Subsidiarily, the Respondents argue that even were Amex and Visa mistakenly to have used the deposits for Old Varig, VRG in any case would have the possibility of filing a claim against it based on the Public Notice. Respondents 1 and 2 further stated:25

"This is moreover a case of yet another topic to be resolved in the court suit targeting the settling of accounts between VRG and Old Varig, now underway at the In-court Reorganization Court (the 1st Commercial (Court) division in Rio de Janeiro)."

315.
This argument has no grounds.
316.
The very Respondents recognized that the claim against Old Varig should be handled via a settling of accounts as set out in Clause 5.3 of the Agreement. And in accordance with what was set out, the result—whether positive or negative—of this settling of accounts corresponds to VLog, not VRG. As a result, and as the Respondents correctly argued (please see paragraph 300 above), in order to avoid bis in idem (literally, not twice for the same, avoiding repetition) the entire claim that is dealt with in the settling of accounts should be excluded from this present litigation. Therefore, VLog will be able to file a claim vis-à-vis Old Varig, and to maintain that as a result of the offsets made by Visa and Amex, the deposits adjudicated by way of auction were negatively affected. All sums that the Respondents succeeded in charging in the settling of accounts will be for their account. Consequently, in order to avoid unjust enrichment on the part of the Respondents, in the relationship between the Respondents and the Claimant, the sums subject to the account settlement should not be a part of the Revised Balance Sheet.

Decision

317.
For the reasons now mentioned, the Tribunal concludes that as per the Revised Balance Sheet as of the Effective Date:

- The correct sum for the item "Deposits by way of Guarantee – Amex" should be increased to R$ 0 (zero); and

- The correct sum for the item "Deposits by way of Guarantee – Visa" should be increased to R$ 3,692,000.

3.3 DEPOSITS BY WAY OF GUARANTEE – AIRCRAFT – FOCUS

318.
Focus Aviation Ltd. ("FOCUS") is a company specializing in leasing aircraft. The discussion as regards the "Deposit by way of Guarantee – Aircraft – FOCUS" is quite similar to that regarding the Amex and Visa Deposits by way of Guarantee. The Assets shown on the Initial Balance Sheet show an account called "Deposit by way of Guarantee – Aircraft – FOCUS" with a value of R$ 2,368,980. In the opinion of the Claimant, the amount of this deposit shown on the Revised Balance Sheet as of the Effective Date should be zero, because VRG never took advantage of this deposit. The Respondents, on the other hand, hold that the correct sum is R$ 2,192,400.

A. Position of the Claimant

319.
The Claimant holds that FOCUS was justified in withholding the Advance,26 as the deposit was used up to repay the obligations that arose as a result of aircraft leased by VRG, which were sent for maintenance under the management of the Respondents.
320.
According to the expert Silvio Simonaggio27 the depositary of the money (FOCUS) used the sums on deposit for the purpose of repaying indebtedness related to maintenance of the engines of the PP–VTI, PP–VTK, and PP–VTP aircraft. The first aircraft was sent for maintenance before April 8, 2007 and the others had already been returned to the lessors before that date.
321.
In this manner, the Claimant concludes that said money, before April 8, 2007, had already been used up for repairs and maintenance that had already occurred or were underway before this date, and they should not be taken into account for the price adjustment, as they already did not exist as of April 8, 2007.

B. Position of the Respondents

322.
According to the Respondents, this is yet another example of negligence with regard to defending the rights of VRG.28 They state that this negligence should be defrayed by the Claimant, and not by the Respondents. In any event, if the deposit were used to repay expenditures for replacement parts, these expenditures should not now be requested of Respondents 1 and 2.
323.
According to the Respondents, the denial of payment on the part of FOCUS occurred in November 2007, when VRG was already under the management of the Gol Group. The Respondents conclude by stating that the asset in question should have been taken into account for purposes of price adjustment.

C. Analysis of the Tribunal

324.
Old Varig had made on July 24, 2006 a deposit by way of guarantee, in the amount of United States $ 1,080,000 with a view to guaranteeing the replacement parts for three aircraft under maintenance.
325.
As shown by the expert Simonaggio29

- One of the three aircraft had been returned after repair on January 15, 2007;

- Another was returned on February 15 of the same year; and

- The third was sent for maintenance before the Effective Date, but had not yet been returned.

326.
The three aircraft were therefore sent for maintenance during the period in which VRG was controlled by the Sellers and by March 15 two aircraft had already been repaired and returned.
327.
And that is a fact that FOCUS, depositary of the funds, never returned the deposit, and that it used it for payment of three repairs.
328.
The key question for the Arbitration Tribunal is who was responsible for payment of these repairs. The response is clear: the aircraft had been repaired or sent for repair before the Effective Date. On this date, in order for the deposit by way of guarantee to continue to be considered as an asset in rem it was necessary that they had been liquidated (or at least that they had had provision made in the liabilities). If this occurred, VRG would have had a right to ask for return of the deposit.
329.
The Respondents did not attach any proof whatsoever that during their term of office the expenses for repair of the three aircraft had been paid or provision made for payment. As a result, the deposit by way of guarantee truthfully speaking constituted an imaginary asset, because it had already been used up by the outlays for the maintenance that had occurred and was not paid (or provision made for), and there was no possibility whatsoever that VRG could get this deposit back. As the deposit by way of guarantee is an imaginary asset, its correct value is R$ 0 (zero).

Decision

330.
For the reasons mentioned, the Tribunal concludes that on the revised balance sheet as of the Effective Date the correct amount for the item "Deposits by way of Guarantee – Aircraft- FOCUS" amounts to R$ 0 (zero).

II. DISCREPANCIES RELATED TO THE LIABILITIES

3.4 SUPPLIERS: OTHERS

331.
On the Initial Balance Sheet the account "Suppliers: Others" showed a sum of R$ 3,565,524. It does not seem that there is any doubt that on the Effective Date, this amount was significantly higher. According to the expert for the Respondents, it went as high as R$ 33,069,928 and according to the Claimant, it was R$ 47,261,088. None of the experts explains how this can happen in merely three weeks—the weeks between the date of the Initial Balance Sheet and the Revised Balance Sheet—that the balance of the account be multiplied by nine (in the opinion of the expert Rodrigues de Sá) or by 13 (in the opinion of the expert Simonaggio). The details on the discrepancies30 that only affect 12 subaccounts within the account "Suppliers: Others" are as follows:

Accounts Claimant Expert Respondents Expert Discrepancy
Maintenance of engine/aircraft 6,641,946,73 2,240,536,93 4,401,409,80
Wells Fargo invoices 4,663,335,68 - 4,663,335,68
OAG Invoices 299,795,04 - 299,795,04
Suppliers - Germany 1,566,705,37 799,673,05 767,032,32
Suppliers - Argentina 31,342,54 3,625,23 27,717,31
Suppliers - Brazil 10,012,849,61 6,359,538,67 3,653,310,94
Suppliers - Colombia 61,736,95 867,67 60,869,28
Suppliers - Venezuela 11,316,76 6,981,77 4,334,99
Suppliers - Hong Kong 24,023,78 - 24,023,78
Suppliers - United States 210,458,23 7,273,66 203,184,57
Arinc Invoices 28,134,81 2,938,82 25,195,99
FRB Invoices 80,083,33 19,133,33 60,950,00
23,631,728,839,440,569,1314,191,159,70

A. Position of the Claimant

332.
The Claimant alleges that this grouping shows the liabilities accounts related to supply of goods and services linked to the company operating and management activities that only actually occurred after the UPV arose. According to the Claimant, these obligations resulted from the UPV management by the Respondents and were needed so that UPV could continue its business activities and preserve the assets until the transfer of VRG occurred. The Claimant states that there are no legal or economic grounds for the intended exclusion.
333.
It states that the actual payment with funds generated during the management of the Claimant corroborates the existence of these liabilities and that the absence of any record as to these obligations on the Initial Balance Sheet resulted in underappraisal of the liabilities, with the consequential undervaluation of the Current Assets.
334.
The Claimant states that the lack of inclusion on the Initial Balance Sheet does not modify the existence of the obligation as of April 8, 2007. The fact of being settled at the subsequent period corroborates the existence of said liabilities.

B. Position of the Respondents

335.
The expert for the Respondents drew up a spreadsheet31 on which he justified—set out in alphabetical order—the reasons according to which he did not accept the adjustments suggested by the expert acting for the Claimant. These reasons were as follows:

- Some amounts correspond to invoices predating December 15, 2006 and were not included on the Initial Balance Sheet, which would make it impossible to post them on the Revised Balance Sheet ("Reason A");

- Other amounts entail obligations referring to the period between December 15, 2006 and March 15, 2007, and were not included on the Initial Balance Sheet ("Reason B");

- Certain sums should be excluded due to their being based on documents issued after the Effective Date, which documents do not specify the period of application nor is there any proof that they correspond to liability of the Respondents ("Reason C"); and

- Finally, the Respondents allege that there are amounts in regard to which it will not be possible on or before the date of submission of the supplementary opinions to prove the existence of accounting records as regards liabilities and their related liquidation ("Reason F");

336.
The chart that follows goes into detail as to the various discrepancies, the reasons for the objection, and the amounts in question:
SUPPLIER ACCOUNT - OTHERS
SUB ACCOUNTS Maintenance NamePaidUnpaid _ TOTAL 1,103 503,553,297,906,25
AB594,865,463,293,740,91508,638,094,165,34
Total da Conta3,888,606,37512,803,424,401,409,80
Account Total
Wells Fargo C4,563,335,68 -4,663,335,68
Total da Conta4,663,335,68 -4 663 335.68
Account Total
OAG A F--17,452,06282,342,9817,452.08282,342.98
Total da Conta-299,795,04299,795,04
Account Total Fornecedores - AlemanhaSuppliers Germany A B F3,040,76521,257,1645,198,06201,92197,223,593,242,68521,257,16242,421,64
Total da Conta569,495,97197,425,50766,921,48
Account Total Fornecedores - Argentina A79,54 -79,54
B22,693,07 -22,693.07
F3,709,671,106,184,815,75
Suppliers - Argentina26,482,181,106,1827,588,36
Fornecedores - C olombia Account TotalF60,869,2760,869,27
Total da Conta60,869,2760,869,27
Suppliers - Colombia
Fornecedores - Venezula Account TotalB4,334,99-4,334,99
Total da Conta4,334,99 -4,334,99
Suppliers - Venezula
Fornecedores - Hong KongA24,023,78 -24,023,78
Total da Conta Account Total24,023,78 -24,023,78
Suppliers - Hong Kong Fornecedores - United States Account Total B F10,506,83192,445,4010,506,83192,445,40
Total da Conta10,506, 83192,445,40202,952,23
Suppliers - United States Fornecedores - Brasil Account Total A B C F173,804,821,832,213,89751,636,9163,906,38832,220,89173,804,821,832,213,89751,636,81896,127,26
Total da Conta2,821,561,90832,220,893,653,782,79
Suppliers - Brazil Arinc A F16,140,889,055,1116,140,889,055,11
Total da Conta Account Total 25.95,9925,195,99
FRB A60,950,00-60,950,00
Total da Conta60,950,0060,950,00
Account Total TOTAL GERAL12,094,493,692,096,665,7114,191,159,40
337.
In summary, the Respondents propose exclusion of the sum of R$ 14,191,159 from the item "Suppliers: Others," for reasons A, B, D [sic], F, which was already explained in paragraph 335.

C. Analysis of the Tribunal

338.
As explained by the expert Mr. Simonaggio, the liabilities included in the account "Suppliers: Others" correspond in general to debts related to the supply of goods and services intended for operating and management activities pertaining to the company that were entered into only after the UPV had come on the scene.32 Specifically:

- Brazil Suppliers : this subaccount with a balance of R$ 10,013,000 is composed of 2,364 documents and covers transactions such as fuel purchase, airport and catering services, legal services, maintenance materials purchasing, cleaning materials, and other products and services of the most various types;

- Engine and Aircraft Maintenance : these are debts pertaining to maintenance of operating and terminal reserve systems;

- Wells Fargo : the invoices comprising the balance still open as of April 8, 2007 refer to the cost of the aircraft parts and pieces that were lacking or damaged and that were charged by Wells Fargo in light of return of the aircraft;

- Germany Suppliers : the liabilities indicated are for the operation base of the Old Varig, UPV and then VRG in Frankfurt (Germany); and

- Other Suppliers : these subaccounts include a series of items that are similar to the items already commented on.

339.
A question of immense importance regards knowing whether VRG did or didn’t actually pay the debts owing these suppliers. The Tribunal asked the experts to provide proof as to this point, which they did, excluding only from the scope of their efforts the individual sums of less than R$ 1,000.00.
340.
The result showed that 88.4% of the debts mentioned in regard to this discrepancy were actually repaid by VRG to their suppliers; with respect to 10.4% one cannot demonstrate actual payment; and 1.2% were not looked into (this of course was because the debt entailed less than R$ 1,000.00). Taking this data into account, the Tribunal accepts as proven that the amount of the indebtedness that is shown as of the Effective Date in the account "Suppliers: Others" was properly defrayed thereafter by VRG to the respective creditors. This fact is a very strong indication that these were valid and demandable obligations, incurred by VRG in the normal course of its business activities.
341.
Having reached this undeniable conclusion at the outset, one must scrutinize whether one of the four reasons, A, B, C, and F, as submitted by the Respondents, has sufficient authority to contaminate this conclusion. The Tribunal will look into each of these reasons on a successive basis.

(a) Reason A: Invoices predating the concession of CHETA

(i) Position of the Respondents

342.
According to Respondents 1 and 2, during the period from July 21, 2006 to December 14, 2006, the UPV assets continued to be operated by the companies undergoing court reorganization, and VRG had to bear the costs of this operation, pursuant to Clause 3.2, subitem "e" of the Public Notice33 up to the ceiling of United States $ 75,000,000.34
343.
According to the Respondents, the creation of VRG on December 15, 2006 and the complete absence of any liability whatsoever for the monies for the UPV period is set out in the actual financial statements of the Gol Group.35
344.
They conclude saying that it is impossible to attribute any value in the proceeding of price adjustment prior to the period from December 15, 2006 and any decision to the contrary would go against the Public Notice, the LRJ, the facts and the very statements conveyed by the Gol Group to its shareholders with regard to VRG.
345.
Respondents 1 and 2 affirm that a "great part of the liabilities that are being taken into account by the Claimant stem very precisely from the debts of Old Varig—which were expressly set aside by LRJ and which, in any event, are being discussed in the mentioned court proceedings."36

(ii) Analysis of the Tribunal

346.
The Tribunal does not agree with the allegations of the Respondents.
347.
Let us briefly review the facts of the case: on July 19, 2006 there was an auction by UPV of the business involving passenger transport from Old Varig to VRG. But this auction did not generate immediate effects, because as this involved an airline being auctioned off, it was necessary for the purchaser to have the correct documentation, known as CHETA, which would be granted by ANAC [Brazilian Civil Aviation Agency]. As a consequence, pursuant to Clause 7.1 of the Public Notice, the auction was suspended until ANAC ratification could be obtained. This was granted by ANAC on December 14, 2006, on which date it was considered that the condition precedent applying to the auction had been complied with.
348.
What is being discussed now are the obligations incurred by UPV, during the period from July 19 and December 15, 2006, which could be taken over by VRG and—if on April 8 they were still owing—should be reflected on the Revised Balance Sheet.
349.
The assets described in the Public Notice—in essence, the Old Varig aircraft intended for passenger transport—were fully operative, and therefore each day they generated revenue, from the sale of tickets, but also operating liabilities (fuel, crew, catering, and so on). When obtaining CHETA in December 2006, the assets were taken over by VRG, which continued to operate with the aircraft.
350.
What in fact happened to the operating liabilities, arising throughout the UPV period, which on December 15, 2006 were still pending payment? Did they remain at Old Varig, or were they taken over by VRG?
351.
The response to this question, from the factual point of view, leaves no room for doubt: the expert Simonaggio showed that VRG paid operating debts arising throughout the UPV period including after the Effective Date. If VRG paid these expenses, it is because it was obliged to do so, as no company voluntarily pays debts that it does not owe. And if VRG was so obligated, in order to have the Revised Balance Sheet as of the Effective Date faithfully reflecting this situation, it would be necessary to have the debts in point appear in the books as liabilities.
352.
From the outset, it would seem that if VRG in fact paid the debts stemming from the UPV period after April 8, 2007, such debts should be reflected in the Revised Balance Sheet as of the Effective Date.

An additional argument

353.
The previous conclusion is seen to be confirmed by the existence of the suit for rendering of accounts set forth in Clause 5.3 of the Agreement.
354.
The purpose of the rendering of account was to correctly distribute certain costs incurred and the funds received during the interim period until such time as VRG were to take over control of the company. Attachment IV to the Agreement contains a list of the items that are to be agreed upon. Pursuant to the Public Notice, VRG had agreed to make a transfer of no more than 75,000,000 USD in order to cover expenditures between the auction date and the date of concession of CHETA. The very existence of this settlement of accounts shows that the Seller believes that VRG should take over certain operating obligations during the UPV period, which debts are reflected in the VRG balance sheet, and that afterwards VRG would seek reimbursement of any such amounts from Old Varig through a suit for rendering of accounts.
355.
In Clause 5.3 of the Agreement, it was agreed that the positive or negative result of the rendering of accounts would in any event correspond to VLog—that is, it would be VLog that could go after Old Varig for the sum owed that had arisen during the UPV period. The other side of this coin is that the sum regarding the debts of the Gol - VLog relationship should be taken into account at the time of calculation of the price adjustment. If not, VLog would be unjustly benefiting financially.

Counterarguments of the Respondents

356.
In light of this conclusion, the Respondents intended to rebut three arguments:
357.
In its first argument37 the Respondents state that the Gol Group in its very financial statements had accepted that VRG had not assumed any liability whatsoever for the UPV debts.
358.
In truth, the financial statements for the Gol Group do not contain any statements from which one might conclude that the Gol Group would be violating what was set out by its own acts. The only mention that said statements make is as follows:38

"VRG started its operations as a concessionaire for rendering of air transport services on December 14, 2006 and in light of its background process and recent history, there is no information for drawing up the pro forma financial statements for the previous periods for comparison purposes."

359.
Based on this, one cannot in any way deduce that the Gol Group would accept that VRG accepted no liability whatsoever for the preexisting debts.
360.
In the second place, the respondents purport that the very Public Notice set forth the principle that VRG would not assume liability for any debts incurred by UPV during the period up to such time as the condition precedent was satisfied.
361.
The Public Notice, nonetheless, seems to set out exactly the opposite.
362.
Pursuant to Clause 7.1 of the Public Notice, the auction was subject to the condition precedent of obtainment of CHETA. Pursuant to Brazilian law, the general principle is that, once a condition precedent has been performed, the effects of the deal are retroactive to the date the contract was actually entered into.39 Thus, unless the Public Notice was to set out something to the contrary, the normal solution under Brazilian law would be that the effects of the UPV acquisition were retroactive to the date of the auction. And that, as a consequence, VRG would be held liable for any business indebtedness that may have arisen while the condition precedent was pending.
363.
Does the Public Notice establish a special certain rule that might contradict this general principle?
364.
In its Attachment II, the Public Notice expressly regulates the "subrogation of contracts" and establishes the following guidelines:

"Contracts that are not personal by nature, or that do not require consent for assignment of the contractual position, will be automatically subrogated pursuant to art. 1,148 of [CC [Brazilian Civil Code]]. The bidder for the VARIG business unit - UPV (the Bidder) will not take over the obligation in arrears with regard to the contracts whereby it is subrogated, pursuant to the provisions set out in Art. 60 of [LRJ], with due regard to the provisions set out by the Public Notice."

365.
The Public Notice says nothing whatsoever as regards to whether the effects of subrogation are produced on the date of the auction or on the date of performance of the condition. By saying nothing, one should assume that the general principle established under Brazilian law would prevail, and recognize the retroactive effects as per performance of the condition precedent.40
366.
The Respondents, in the end, filed a third argument : art. 60 LRJ would make it unfeasible for an auction of a business unit, in the course of court reorganization, to produce subrogation as per the purchaser as regards preexisting obligations.
367.
In good truth, art. 60 LRJ does not support the position of the Respondents—throughout the case, its failure to establish anything reinforces the opposite position. Let us then see:
368.
Art. 60 LRJ establishes the following:

"If the approved plan for court reorganization were to involve court transfer of branches or of isolated business units of the debtor, then the court will order this to be done, with due regard for the provisions set out in art. 142 of this Law.

Sole Paragraph. The object of the transfer will be free and clear of any encumbrances whatsoever, and there will be no succession of the bidder as per the obligations of the debtor, including obligations involving taxes, with due regard for the provision set out in Para. 1 of art. 141 of this Law."

369.
The precept set forth above in fact establishes that a UPV transferred "will be free from any encumbrances and there will be no succession of the bidder as regards the obligations of the debtor." Please note just what this precept regulates and what it does not regulate. As worded, the article merely refers to any obligations that may have arisen before transfer, meaning, before the auction was carried out. With regard to these obligations, there is no doubt whatsoever that VRG is not liable. Art. 60 LRJ, nonetheless, does not regulate the event whereby a transfer is made pending a condition precedent, and does not establish the regimen for the obligations that might arise while performance of the condition is pending. As a consequence, as there is an oversight in the regulations, this lacuna should be resolved by appealing to the general principles of Brazilian law. And the general principle applicable to conditions precedent is that they are effective retroactively.
370.
As a consequence, the Tribunal estimates that the correct construction of art. 60 LRJ underlines the conclusion already reached: that VRG is liable41 for the debts incurred throughout the UPV period. With the corollary that, if on April 8, 2007 these debts were to remain payable, they should appear on the Revised Balance Sheet as of the Effective Date.

(b) Reason B: invoices postdating concession of CHETA

371.
Reason B, which the Respondents put forth in order to propose that certain suppliers’ debts be excluded from the calculations, is based on the fact that these are obligations referring to the period between December 15, 2006, the date of CHETA, and March 15, 2007, the date of the Revised Balance Sheet, which sum is not included on this Balance Sheet.
372.
The argument cannot prevail.
373.
The item "Suppliers: Others" was one of the items that had to be included in the Initial Balance Sheet and the Revised Balance Sheet.
374.
The only thing shown by the fact that on March 15, 2007 there were certain debts to various suppliers, and that the Respondents had not included these when calculating the item "Suppliers: Others" on the Initial Balance Sheet is that said balance sheet was not well calculated, and did not give a true image of the actual financial situation. Therefore, one cannot deduce that certain debts, if they even existed as of April 8, should also be excluded from the Revised Balance Sheet. As already mentioned, the Revised Balance Sheet on the Effective Date should have been an audited balance sheet that might give a true calculation of the items set out in Clause 5.1 and in Attachment III. And in order for this image to be true, it is essential that all debts as per the suppliers be duly reflected.

(c) Reason C: other invoices

375.
Reason C refers to a series of invoices that in the opinion of the Respondents should be excluded as they were portrayed in the documents issued after the Effective Date, which documents did not specify the period of application, nor is there any proof that the liability corresponds to the Respondents.

(i) Wells Fargo

376.
The first group of invoices that are said to involve discrepancies are the invoices pertaining to Wells Fargo. Well Fargo reportedly had leased to VRG two MD 11 aircraft, and the invoices are as follows:
377.
The invoices with respect to PP-VTI aircraft came about as follows: before the Effective Date, the aircraft was no longer in service. There was no evidence whatsoever that the Sellers had decided prior to the date of the Initial Balance Sheet, that is, March 15, to return the aircraft to the lessor. On the other hand, there is likewise nothing in the case record indicating the decision to return the aircraft to Wells Fargo had been taken between March 15 and April 8, the Effective Date, while still under the management of the Sellers. The only evidence that exists in the case record shows that the aircraft went to maintenance before the Effective Date42—but not that the decision was to definitively return the aircraft.
378.
It further appears that it was later, once under Gol control, that the decision was taken to return the aircraft to the lessor. And it was in fact on July 19, 2007 that VRG returned the plane to Wells Fargo, thereby terminating the lease. At this point, the aircraft was incomplete, as two engines and some auxiliary equipment were lacking. As a consequence, Wells Fargo issued on July 19, 2007 two invoices in the name of VRG billing the sum owed by the parties due to what was lacking in the plane.43
379.
The Tribunal concluded that, when on April 8, 2007 the Revised Balance Sheet was being prepared, the aircraft was undergoing repairs but the VRG directors had not yet made the decision to return the plane. As a consequence, it was not foreseeable that Wells Fargo would require payment of the equipment that was missing. In light of this, the Tribunal rules that the invoices for the PP-VTI aircraft, totaling R$ 4,609,030 and issued by Wells Fargo, do not constitute operating liabilities as of the Effective Date and should not be taken into consideration under "Suppliers: Others."
380.
The status of the PP-VTJ aircraft is similar. In this case, the case record shows that on March 28, 2007 the aircraft was released for return to service, after carrying out the maintenance,44 and as a consequence it seems that it returned to operations. Subsequently, at some point, it must have been subject to maintenance once again, and on June 13 it was again released to return to service.45 On June 6 the aircraft was returned to Wells Fargo.46 In this case, the evidence submitted seems to show that on April 8, 2007 the aircraft was in service, and therefore it could not have been foreseen that subsequently it would be returned to the lessor and that said lessor would then submit a bill for the parts that were missing.
381.
As a result, the Tribunal has decided to reject all Wells Fargo invoices totaling the sum of R$ 4,663,33647 as "Suppliers: Others".

(ii) Other invoices

382.
The remaining invoices in point refer to cases whereby the document was issued subsequent to the Effective Date, that is, April 8, 2007, but the expenditure was incurred before that time. In accordance with the accrual basis of accounting, these sums should be included on the Revised Balance Sheet, as they referred to obligations that occurred before this date. Mr. Rodrigues de Sa did not submit any argument whatsoever that would refute this conclusion48 and as a consequence the Tribunal accepts the inclusion of these invoices in the amount of R$ 751,636 under the heading "Suppliers: Others."

(d) Reason F: lack of proof of liabilities

383.
According to what is alleged by the expert designated by the Respondents, Mr. Rodrigues de Sa, there are sums relating to which it has not been possible up to the date of submission of the supplementary opinions to prove the existence of the accounting entries for liabilities and their related settlement; consequently, the expert suggests that these sums be excluded.
384.
In this case, the Arbitration Tribunal shares the opinion stated by Mr. Rodrigues de Sa.
385.
The burden of proof falls to the Claimant; and in the case of these invoices, the Claimant and its expert were not able to demonstrate the existence of the indebtedness that they are seeking to group along with the liabilities in the Revised Balance Sheet. As a consequence, the Tribunal is of the opinion that said sums are not to be included with the "Other Suppliers" account.

Summary

386.
As a consequence, the Tribunal has reached the conclusion that from the total of R$ 14,191,160 in point the sums indicated below should be excluded as follows:

- Reason A: R$ zero;

- Reason B: R$ zero;

- Reason C: R$ 4,663,336; and

- Reason F: R$ 1,688,074.

387.
As a result of these exclusions, totaling the sum of R$ 6,351,410, the sum of the item "Other Suppliers" comes to (R$ 40,909,678).49

3.5 CHARGES, TAXES AND CONTRIBUTIONS – INFRAERO

388.
The account "Charges, taxes and contributions – INFRAERO" represents liabilities linked to the charges levied by the authorities managing the airports—in the case of Brazil, INFRAERO—for embarkation of passengers, use of the landing strips and similar services.
389.
On the Initial Balance Sheet the account appears among the liabilities with a zero balance. What is being discussed in the present controversy is just what the correct amount of this account should be at the Effective Date. In the opinion of the expert for the Claimant, the correct sum is R$ 15,450,963, while the expert for the Respondents, although he does admit that the sum calculated by Mr. Simonaggio is numerically correct, feels that there has been a decision on the part of the parties involved to not include this account, and that therefore the sum posted to the account should be zero.

A. Position of the Claimant

390.
According to the Claimant, and according to its expert, the airport charges are an integral part of the ordinary operations of VRG, having the same nature as the other obligations of supply, services, taxes and related items50189 and therefore they should be included as a liability on the Revised Balance Sheet.
391.
According to the expert for the Claimant, the expert for the Respondent[s] included, when adjusting the price of a subaccount of a similar nature, the outstanding balance of R$ 9,653 million for the account "Charges for Embarkation – INFRAERO," which figures in the group "Charges, Taxes and Contributions – Others."
392.
The Claimant concludes that "should the account not refuted in the [First Rodrigues de Sá Expert Opinion [sic]] be maintained and the account refuted in the [First Rodrigues de Sá Expert Opinion [sic]] be rejected, the result will entail an unjust gain, as only the balance that involves the price adjustment in favor of [VLog] would be maintained, of the two accounts that are being offset at the time of the financial settlement".51

B. Position of the Respondents

393.
According to the expert for the Respondents, the accounts taken into consideration for attaining the amount of R$ 15,450,963 were not taken into account by the parties in the Agreement, even though they had a balance as of March 15, 2007, for which reason the balance should be zero on April 8, 2007.52
394.
According to the expert Rodrigues de Sá, this discrepancy results from the fact that the expert for the Claimant mistakenly called the account "Charges, Taxes and Contributions" by the name "Airport Charges," which allowed the inclusion of various subaccounts in this account, which, according to the expert for the Respondents, did not have any relevance whatsoever to the amounts owed INFRAERO.
395.
On the other hand, the discrepancy also results from the fact that the only account from the VRG accounts plan that could be taken into consideration for this specific item concerning the price adjustment would be account 2183000001, called "Airport Tariffs – INFRAERO." However, and according to the Respondents, this account, notwithstanding its having a balance of R$ 10,977,288 as of March 15, 2007, is shown in Attachment III to the Agreement with a value of zero.53 This leads us to conclude that the parties had agreed that, independently of whatever balance that this account might be showing as of April 8, 2007, it would not be taken into consideration.
396.
The Respondents conclude by alleging that should the Tribunal feel that subaccount 2183000001 corresponding to Airport Tariffs – INFRAERO should be used for purposes of determining the working capital as of April 8, 2007, even so the amount would be only R$ 628,588 and not R$ 15,450,963 as suggested by the Claimant, based on the Simonaggio Expert Reports.54
397.
According to Respondent 4, INFRAERO would only allow VRG to operate at Brazilian airports if it paid the corresponding charge up front, for which reason there could be no liabilities in this regard in the account.55

C. Analysis of the Arbitration Tribunal

398.
The expert for the Claimant determined that as of the Effective Date there were certain liabilities arising from use of the airport infrastructure, for domestic and international flights, which agree with the collection reports issued by each one of the airport authorities involved.56 In its opinion, the amount of these debts should go in the item "Charges, Taxes and Contributions – INFRAERO" and as of April 8, 2007 it totaled R$ 15,450,963.